Argentina is the latest South American country to consider cryptocurrency. Since El Salvador adopted Bitcoin as a legal lender, crypto discussions have heated up in Central and South America, particularly in Argentina, because the digital currency can be an alternative to the Argentine peso’s devaluation. As Decrypt puts it, Bitcoin also provides “indirect exposure to the US dollar.” 

Argentina’s president, Alberto Fernández, has made several favorable remarks about cryptocurrencies, implying that the country may use Bitcoin to combat its high inflation.

Argentina considers Bitcoin adoption

President Alberto Fernández commented about cryptocurrencies in an interview on the Caja Negra YouTube channel, implying that the country is open to integrating them into its financial system.

While Chief Fernandez has expressed both support and caution for Bitcoin and other cryptocurrencies, Argentina’s central bank President, Miguel Pesce, regards Bitcoin as a speculative asset with volatile profits.

Against inflation

A key point of debate and friction is whether and when or how bitcoin should be used as a means of payment, particularly in economies characterized by high cash usage and inflation levels. 

Argentina’s inflation rate is currently around 50%. The notion of using Bitcoin as a hedge against inflation stems partly from the fact that there is a finite amount of it that can be created — 21 million, to be exact. There is some level of value associated with scarcity — where that level remains to be seen.

When placed against the uncertainties of economies grappling with inflation and less-than-stable governments, the fact that bitcoin exists “apart” from the central bank system may be appealing.

Argentina announced earlier this year that it had begun rolling out Transferencias 3.0, a nationwide digital payments system based on QR codes. Accepting bitcoin in commercial/retail/general payments settings may be viewed as muddying the waters by central bankers; a CBDC launch would detract from current digitization efforts.

In Argentina, the president and the central banker appear to have opposing views on the role of cryptos (and CBDCs) in the world, indicating that no clear roadmap is in place.

Crypto mining booms in Argentina

Decades of inflation have devalued the Argentine peso, and there is little indication that the situation will improve. As a result, many Argentinians have turned to cryptocurrency as a form of haven. As investors scramble to protect their wealth, bitcoin and ethereum have historically sold at a premium in Argentina.

Argentina’s bitcoin miners are profiting on the country’s interventionist economy’s inefficiencies, spurred by memories of currency crashes and powered by government-subsidized electricity.

While crypto mining has exploded in many countries this year, the South American nation’s miners are benefiting from ultra-low utility rates and the revival of capital controls. Various experts believe that it’s just another example of Argentines’ perennial ability to manipulate their heretical policies to their benefit.

Bitso, a cryptocurrency exchange based in Mexico that recently expanded into Argentina, has already seen a 68 percent increase in trading volumes on its platform in the third quarter of 2020 compared to the second. Bitso’s relocation to Argentina also aided the platform’s achievement of 1 million users earlier this year.

Miners benefit from the country’s long-standing residential electricity subsidies, a policy designed to win political points with voters, but that is increasingly inflaming tensions within the ruling Peronist coalition.

Even though Argentina is a net gas importer, consumer electricity bills in Argentina account for only 2% to 3% of an average monthly income, compared to about twice as high in other Latin American markets like Chile, Columbia, or Brazil, according to Ezequiel Fernandez whos is an analyst at Balanz Capital Valores in Buenos Aires.

Furthermore, with yearly inflation of around 50% and a currency restriction limiting individuals to only $200 in currency conversions per month, rampant demand for any store of value is propelling a drop in the peso in parallel markets, where it is presently roughly 70% weaker than the official rate.

Regardless of how volatile Bitcoin will be in the coming months, individual mining in Argentina will probably remain profitable as long as the government pays at least a portion of the electricity bill. 

To summarise, Fernandez stated that the country should not rule out cryptocurrencies. After all, they could bring significant advances to its inflation problem because they are a more “hard” currency than their fiat counterparts.

A lot is going on in Argentina’s crypto world, and it has managed to fly under the radar to some extent up until now. Not only are Bitcoin and the rest of the crypto assets interesting for financial speculation, but they’ve also created a massive hype that has sparked creativity and innovation. Argentina has a very real chance to be at the forefront once more.