The second-largest South American nation is suffering again as its currency, the Argentine peso, is on the brink of collapse.
Current President Mauricio Macri has been unable to control Argentina’s soaring inflation rate – and the results of the recent primary vote showed the country’s rising anger. Could Bitcoin save the day?
The Argentine peso dropped by 30%
As Macri was slammed in the primary voting round – with his opponent Alberto Fernández dominating the show with a 15.5% margin – the Argentine peso dropped by over 30%. In a country that’s used to bouncing from crisis to crisis, this sudden plummet marked a new record low against the dollar. Once pegged on a 1:1 system, after the recent primary election, the exchange rate was 65 pesos to one dollar.
Stocks and bonds also crashed, marking a level not seen since the country’s worst modern-day financial crisis of 2001. While Macri’s chances of reelection are now looking slim, the protest vote may not signal the end. The currency quickly recovered some of its value on the same day. It is now trading at around 55 pesos to the dollar.
According to data from Refinitiv, bonds, stocks, and the Argentine peso had not registered such a simultaneous and brutal decline for almost 20 years. So, what does all this mean for Bitcoin?
A country used to devaluations and crisis
In a country well used to seeing sharp drops and devaluations in its currency, its population has long since found ways to circumvent seeing its wealth wiped out. The inflation rate currently sits at around 50%. This is hardly the levels of Venezuela, but it’s still alarming.
In fact, despite Bitcoin not yet surpassing its all-time high of almost $20,000 at the end of 2017, it already more than surpassed its all-time high in Argentine pesos back in May of this year at 394,000 pesos. That number continues to climb. That means that even Bitcoin bought at its highest level has been a good investment for Argentinians.
Many people place their savings in property and land in this part of the world. With such a high rate of inflation, most big-ticket items are an investment rather than a cost. Consider buying a new car in Europe. As soon as you drive it out of the showroom, it depreciates rapidly in value. In Argentina, thanks to its high level of inflation, your car only gets more valuable.
There has long been a black market in Argentina for US dollars as many people quickly convert the Argentine peso into the dollar and save them in their mattresses, wardrobes, or safety deposit boxes.
This is something almost unthinkable in a modern economy, yet it’s par for the course here. After all, those who held their savings in pesos in 2001 saw most of the value wiped out when the pegging system was removed. Those who held dollars flourished. But Bitcoin wasn’t around then.
Could Bitcoin save the day?
Bitcoin adoption in Argentina is among the highest in the world thanks to relaxed regulations, a growing number of crypto start-ups, and initiatives such as allowing for the Buenos Aires subway card SUBE to be topped up with Bitcoin. Whether most of its people use it or not, they are aware of the word and of most other cryptocurrencies as well.
Yet with Bitcoin still screeching toward alarming highs and punishing lows, dropping by major percentage points one day and lurching upwards the next, it’s hard to think of this digital asset as saving the day for anyone just now.
However, don’t underestimate the importance of relativity. If you come from a country with a 1-2% interest rate per year and an established world currency, placing your savings into a volatile asset like Bitcoin may seem very risky indeed.
But for Argentinians who have lived through enough currency devaluations and who want to try a different method, Bitcoin is offering an alternative. Remember, a 30% drop in your own currency in one day and 50% inflation… Bitcoin has made gains of over 1,000% since the start of this year. Moreover, ever since 2001, its citizens are infamously distrustful of banks.
Just last week, peer-to-peer Bitcoin trading platform LocalBitcoins saw Bitcoin trading at a premium of as much as 8% in Argentina. This clearly shows that demand for BTC is high if buyers are willing to pay more for the asset than its trading value on most exchanges.
Moreover, LocalBitcoins registered a huge spike in BTC purchases after the primary election debacle, explaining the premium.
Keeping things in perspective
While many Argentinians may be familiar with the word, Bitcoin is still far from their saviour right now. It’s not a wise decision to pour all your savings into a volatile asset still subject to regulation and uncertainty, theft, and hacks.
However, it does offer this struggling country’s population an alternative way of storing their value – and even making returns. That’s definitely something that doesn’t happen if you hoard stacks of dollars in a shoebox.