By Javier Paz, Forbes
Compiled by | Wu Talks about Blockchain
Original link:
https://www.forbes.com/sites/javierpaz/2024/07/08/why-inflation-battered-argentinians-are-turning-to-crypto/
Note: This article does not represent the views of Wu Shuo
Argentina, which has an inflation rate of 276%, has the highest cryptocurrency adoption rate in the Western Hemisphere, according to a Forbes analysis.
In recent years, inflation has become as much a part of Argentina’s identity as asado, a world-famous beef barbecue social event. In fact, a prime example of the country’s surging inflation rate, which has risen 276% in the past 12 months, is that Argentines’ eating habits are changing. As Argentines turn to cheaper proteins like pork and chicken, demand for beef, the country’s main staple, is falling. Some forecasters believe beef prices will rise 600% this year, and steak is no longer on people’s menu.
Argentines have been looking for a way out of their depreciating peso for decades. In fact, for at least 50 years, Argentines have been buying dollars through black market institutions known as "cuevas" (caves) or "arbolitos" (small trees). The most famous black market operators can be found on Florida Avenue, the main artery of the capital, Buenos Aires.
These are not perfect substitutes, as there is a chance that customers could be defrauded. Unapproved and unsafe money exchangers convert pesos to dollars at twice the government-published exchange rates. They are currently 41% higher than the official 954 pesos to the dollar. And that’s not the only risk. Another major risk, according to The Nation, includes customers being robbed by their counterparties or receiving counterfeit money.
But now, a new way to access dollars — cryptocurrency — has emerged. In fact, Argentina has a higher rate of cryptocurrency adoption as a percentage of the global population than any other country in the Western Hemisphere. Of the 130 million visitors to the world’s 55 largest exchanges, 2.5 million are from Argentina, according to a Forbes study with analytics firm SimilarWeb.
Argentines don’t play the memecoin lottery or try to get rich overnight with the next hot token. Instead, they typically buy and hold Tether (USDT), a synthetic dollar with a market cap of $112 billion. “Argentina is an outlier market, with a lot of people buying USDT and not leaving much room for other cryptocurrencies,” said Maximiliano Hinz, head of Latin America at the Bitget cryptocurrency exchange. “We don’t see this elsewhere. Argentines buy spot Tether and do nothing with it.”
While stablecoins like Tether seem like the perfect way out of Argentina’s inflation woes, they come with their own set of risks. Argentina has yet to introduce any regulations to rein in this messy industry, and the world’s most trusted exchanges and marketplaces (according to Forbes’ ratings) aren’t the most widely used options for Argentinians.
The country’s new liberal president, Javier Milei, has expressed an openness to dollarization, telling a business conference on May 17 that Argentina is moving toward a “system of competing currencies” where everyone will choose which currency to use for payments and transactions. He expects this will lead to the country “using less and less pesos, and when there is almost no peso anymore, we will dollarize and eliminate the central bank so that corrupt politicians can’t steal by printing money.”
Stablecoins pegged to the U.S. dollar are consistent with the concept of dollarization, but buyers must find a safe way to purchase, hold, and use these stablecoins. Argentina does not provide meaningful safeguards for cryptocurrency users.
Argentina has a higher rate of cryptocurrency adoption as a percentage of the global population than any other country in the Western Hemisphere. According to a Forbes study of data from the website Similarweb, 2.5 million of the 130 million visitors to the world’s 55 largest exchanges are from Argentina. In addition, according to a report from crypto data analysis company Chainalysis late last year, Argentina “leads Latin America in raw trading volume, with an estimated $85.4 billion in trading value” as of July 2023.
However, their token of choice, USDT, has a complicated history. Tether, registered in the British Virgin Islands, keeps its inner workings strictly secret, has never conducted an audit, and does not disclose the banks it uses. In 2021, the U.S. Commodity Futures Trading Commission and the New York Attorney General forced Tether to pay fines of $41 million and $18.5 million, respectively, for reasons including falsely claiming that USDT was backed one-to-one by the U.S. dollar. These warning signs did not seem to cause much concern for Argentine customers who are still suffering from triple-digit inflation.
Exchanges and marketplaces serving Argentina also present risks. In Forbes’ May ranking of the world’s 20 most trusted cryptocurrency exchanges, Argentina’s top five cryptocurrency providers — Binance, eToro, BingX, HTX, and Bitget — were not included due to poor internal controls and a lack of domestic regulation. Binance was the most visited exchange as of March.
Understanding and assessing these risks is difficult for the average Argentine or other novice investor. Fernando Apud, an Argentine software engineer living in the country’s northern Tucumán province, recently evaluated local company websites like Cocos Capital and the larger, more complex Binance website. While these sites advertise security and convenience, he found that even large sites like Binance were vague when it came to disclosing basic information like whether they were registered to do business in Argentina and the names of the entities holding their investments.
In addition to cryptocurrency exchanges, Argentines can also use local companies that allow users to buy and spend cryptocurrencies through prepaid cards, such as Lemon and Buenbit. However, these companies also operate in a regulatory gap. In a recent Chainalysis Latin America report, Alfonso Martel Seward, head of compliance at Lemon Cash, said his company has about 2 million of the country's approximately 5 million cryptocurrency users.
It’s no surprise that Argentines have had enough of the peso’s depreciation, which has been a problem for them since the 1:1 peg to the dollar ended in January 2002. Years of overspending and debt defaults have plagued the currency since then, with the dollar trading at around 4 pesos a decade later and 64 pesos when the coronavirus hit the Americas in early 2020.
While the peso’s devaluation initially boosted trade in the early 2000s, that benefit disappeared after 2009, and Argentina has had a current account surplus in only two years since then, according to Bloomberg. Inflation-adjusted gross domestic product has fallen by an average of 0.1% a year over the past decade, with growth in only four years.
Why is Argentina in trouble? In addition to a bloated public sector with 3.5 million employees and a lack of commitment to fiscal austerity, external factors such as weather patterns (La Nina) have had a major impact on grain exports, the country's main source of hard currency. Argentina has experienced its worst drought in 60 years. "It is unprecedented to have all three crops fail," said Julio Calzada, head of economic research at Argentina's main agricultural exchange, referring to soybeans, corn and wheat. "We are all waiting for the rain." Fewer crops means fewer dollars, which exacerbates domestic food price increases and increases default risks and interest rates.
In his inaugural address on Dec. 10, 2023, Milei made clear that he planned to put an end to past practices. “Today, we bury decades of failure and meaningless struggle,” he said. “There is no going back.” At the time, the country was running an annualized inflation rate of 143%, a trade deficit of $43 billion, and a fiscal deficit of 3.5% of GDP. Six months after taking office, while inflation remains high, the country has achieved six consecutive months of trade surpluses, a fiscal surplus of 1.1% of GDP, and has gradually restored billions of dollars in hard currency reserves to repay the country’s more than $45 billion in foreign debt, much of which is owed to the International Monetary Fund, Argentina’s de facto lender of last resort.
Milei is seeking to reverse policies that appear destined to hurt Argentina’s economy. His measures include laying off tens of thousands of public sector workers, suspending public works, eliminating energy subsidies, raising taxes, and reducing federal revenue sharing with provinces — all deeply unpopular moves that have led to street protests and sharp cuts to Milei’s austerity measures, which have limited support in Congress. The scaled-back fiscal measures passed the Senate by a narrow margin in June and will now go to the lower house, where they will have an easier time passing.
Milei’s conservative leanings may be the harsh prescription the country needs to finally move forward, but there’s no spoonful of sugar to help make the bitter pill easier to swallow.
Even if Argentina’s economic situation improves, decades of economic mismanagement mean the flight to the dollar (both paper and, increasingly, digital currencies) will continue. Yet the government is not doing enough to protect its citizens.
What cryptocurrency regulations are there in Argentina? Three months ago, the CNV announced a registration requirement that states that “all those who use web pages, social networks or other means to send offers/advertisements to individuals residing in Argentina and receive user funds through any technology” must register. However, no deadline for registration was set. Nevertheless, CNV Chairman Robert E Silva tried to make clear the impact: “Those who do not register will not be able to operate in the country.”
The requirement is neither complex nor onerous for registrants. However, three months after the rule came into effect on March 25, none of the 55 cryptocurrency companies operating in Argentina that Forbes researched were registered. As of June 20, 48 companies were listed on the public register, most of them relatively small local businesses.
Argentine officials did not respond to repeated requests for comment.
Registration is a small step, and certainly not enough for the world’s 22nd largest economy with a GDP of $633 billion. Especially given Argentina’s history of persistent inflation, coups, and political turmoil. The world of Bitcoin and digital currencies was born in 2008 out of the Great Recession in the United States. However, it was just as fitting to start in this Andean country.
