What’s going on in Argentina?
Argentina has been facing a market meltdown since mid-August following the country’s primary elections – although the crisis has been brewing for some time. President Mauricio Macri suffered a shock defeat, which immediately led to the plunge of both the national currency and the stock markets.
The Argentine peso dropped by over 30% against the USD, which likely triggered more Argentinians to buy Bitcoin. This may be one of the major causes of the Argentina Bitcoin premium. However, the situation in the country has been problematic for years. These recent events have simply furthered the lack of trust in the peso, as well as highlighting the need for alternative ways to protect people’s savings.
On top of that, the Argentine government recently imposed currency controls in a desperate attempt to stabilise the markets. Enterprises and individuals can no longer buy large amounts of foreign currency without central bank permission. Authorities have also set restrictions for international transfers to counter the risk of capital flight.
Argentinians are scared by currency controls
These extreme measures could have adverse effects on the local population. Argentinians are known for not trusting their national currency due to a rising inflation rate (currently over 50%) and its repeated devaluations and collapses.
People in this country prefer to convert their savings into dollars in a bid to preserve their earnings. Many also prefer to keep their savings in cash under the mattress instead of using a bank.
The new restriction currently has a $10,000 ceiling for buying USD. While it shouldn’t directly affect the average citizen, currency control in itself has psychological consequences.
Argentinians are used to not having access to USD. This isn’t the first time authorities have taken control over a foreign currency that enters and leaves the country. In this light, without the possibility of accessing USD in the near future, people could quickly turn to Bitcoin.
Could Bitcoin really help counter inflation?
Financial markets in Argentina are mostly uncertain. Inflation, volatility, and government controls make the local currency unappealing for the local population.
Bitcoin doesn’t depend on the government, elections, or any other local or national authority. When you keep your funds in cryptocurrency, you don’t have to worry about inflation rates, interest, or currency controls (just hacks, regulation, and rampant price swings).
However, while the price of BTC may have seen a significant correction recently, it’s currently still more trustworthy than the Argentine peso. And even a slightly bearish Bitcoin is better than a currency that struggles under the weight of a 50% inflation rate.
The Argentina Bitcoin premium has gone up and down from tens to several hundreds of dollars in the past few days. The locals were willing to buy BTC on the crypto exchange LocalBitcoins for $10,915 at a time when the digital coin was available for prices between $9,887 and $9,905 on international exchanges. That’s more than a $1,000 premium.
How is this possible? Since it’s uncertain whether we’ll see more restrictions on the USD in the South American country, Bitcoin may be considered a safer alternative to the peso.
The fact that Argentina has so far taken a crypto-friendly approach helps as well. More and more crypto start-ups are registering consistent growth in this country, encouraging cryptocurrency adoption.
Will the Argentina Bitcoin premium up the global BTC price?
Most probably not. Bitcoin is a viable alternative when your government decides what you can and can’t do with your money. Having your funds far from the control of the authorities may be worth the $1,000 premium when extreme measures are in place. However, this isn’t the case in most of the developed or developing world.
Luckily, currency control isn’t common practice globally, so most people aren’t forced into cryptocurrency. The majority of those who choose to buy Bitcoin right now pay attention to the market and its price fluctuations.
A 25% price correction may be a risk worth taking for Argentinians, but the global market doesn’t reflect this. Bitcoin remains a volatile asset, and its price is still struggling to keep above the $10,000 threshold and consolidate resistance.
Countries with stable economies are less likely to see people desperately looking to buy Bitcoin. At least, not with all the consecutive lower highs we’ve seen lately.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.