Interest in Argentinian Peso is down and interest in Bitcoin is up. A tale of how Bitcoin made it to the list of top preferred investment options in Argentina.
The cryptocurrency market is one of the most profitable, yet volatile markets in the world. Its future prospects show a positive graph but no projections can ever accurately predict its momentary status. That status can also potentially be of a dip that can last for months, resulting in heavy losses. An example of this is the heavy drop in the value of Bitcoin from a surge of 550% within a few months, reaching an all time high of over $60,000 to a sudden low of $30,000 within a few days. This, however, does not baffle investors or holders of Bitcoin as they can be seen to be tightly holding on to their Bitcoins despite the value drop. In these conditions, Argentina surprisingly appears to be a hot spot for the cryptocurrency industry.
Argentines are growing more passionate about cryptocurrency, amidst the currently dwindling economy of the country.
Cryptocurrency and the Argentines
Source: triple-a.io/crypto-ownership-argentina/
El Economista reported that Argentines were found to be possessing US$130 billion as far as the financial system is concerned. This figure makes Argentina the representative of 8% of the world's stock market shares. As for money made through tax evasion, the total amounted to $175 billion. While another, more up-to-date report follows that the legitimate cryptocurrency profits were worth $200 million in Argentina which led it to rank 21st in terms of nonillicit Bitcoin gains. An estimate follows that approximately 1.3 million citizens of Argentina's population are holders of some form of cryptocurrency. This makes up about 2.94% of the overall population of the country.
The nominal GDP of Argentina is USD 389 billion, with a population of 45.3 million.
Covid 19 ruined many economies, however amidst the global pandemic, the founder of Ethereum, a powerful cryptocurrency, visited Argentina on unknown business. South America, in general, has been a favorable breeding ground for cryptocurrency companies with the founder of Ethereum going as far as to state that “Last week, I actually went to Argentina! My verdict: generally correct. Cryptocurrency adoption is high but stablecoin adoption is really high too; lots of businesses operate in USDT. Though of course, if USD itself starts showing more problems this could change.”
This heavy interest in Argentina was quite surprising as the country's economy does not appear to be flourishing. However, it was later seen that the crumbling economy amidst political tensions made way for new thinking where instead of being repelled by cryptocurrency, Argentines are attracted in flocks towards the market and putting all their assets on the Blockchain.
Blockchain LatAm conducted a study that consisted of a survey of Argentinians where they were asked about investments in cryptocurrency. The study states:
“A survey commissioned from Toluna by Sherlock Communications which asked Argentinians why they would consider investing in cryptocurrencies found that 66% of respondents were most concerned with protecting their savings."
It is understandable that people are wary, however, this obvious interest in cryptocurrency could potentially make Argentina the first country in Latin America to go crypto.
The Stance of the Government on Cryptocurrency
The former president of Argentina, Mauricio Macri, met with Ethereum founder Vitalik Buterin during his visit to the country. The president later tweeted;
"Fascinating encounter with Vitalik Buterin, creator of Ethereum, one of the most innovative decentralized technologies of our century. Its Ether currency is one of the best valued in the world. We chat about the role of crypto and blockchain opportunity…"
Current president, Alberto Fernandez stated in a press release that cryptocurrency was a subject that should be treated with utmost care as it is still a novel thing. He stated this as the reason behind cryptocurrency not being able to expand is due to his precautions in viewing cryptocurrency as a legitimate currency that can become part of government affairs. This implies that although the government is wary of cryptocurrency, especially with the economic condition that Argentina is currently passing through, it is not completely shut off to the idea of crypto making it into transactions on a government level.
Upon being asked whether Argentina would follow the footsteps of El Ecuador in terms of Bitcoins, Fernandez said in a YouTube interview, "I don't want to go too far out on a limb [...] but there is no reason to say no." This was a stance that directly favored Argentina's adoption of cryptocurrency, therefore after some time, the president tweeted to correct himself, this time trying a more neutral approach.
He said:
“The conversation surrounding cryptocurrencies is a global one. And I must confess that it is a matter that needs to be treated with care. For me, there is still a lot I don’t know about cryptocurrencies. But there’s no denying it, perhaps it’s a good path to take.”
These statements are in light of El Salvador announcing their adoption of cryptocurrency in June 2021. Many other South American countries have since followed suit, including Brazil, Panama, and Paraguay, with some directly stating their support for crypto, while others simply endorsing it.
The economic ministers of the county talked to governors of certain provinces on the topic of energy subsidies. Inflation in Argentina has broken all records this past decade. Many governments have attempted different tactics, from currency control programs to price freezers, but inflation is here to stay.
Argentines are attempting to increase their consumption of US dollars. The dollar usage is in light of their belief that it would save them from the unsteady conditions of the national economy, yet they end up paying ridiculous amounts of about 58% for a "premium" called "dólar blue" that allows them to use the dollar.
The dollar accumulation by the Argentines has reached up to around $130 billion being in circulation in Argentina's financial system, which makes about 8% of the actual stock for dollars. The remaining amount of $175 billion is found to be a product of laundering or tax evasion.
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Energy Costs and Peer-to-Peer Platforms
Argentina hosts about 20 crypto mining facilities or "farms" mainly in the cold Patagonia. Mining rigs are powerful machines that perform excessively complex calculations to unlock a block on the chain and allow newly minted crypto to be added into circulation in the block. This entire complex function causes the machines to heat up real quick and then additional energy is required to cool them down. Going for a cold place in Argentina means directly cutting down on costs as the atmosphere itself also acts as a coolant.
Publicly-traded Bitcoin mining platform, Bitfarms, made the announcement that their 60 Megawatts operation in Argentina would be raised to more than 100% power, at 210 megawatts. The company claims that this energy is “sufficient to support approximately 55,000 new-generation miners, which could generate approximately US$650 million in revenue.”
Bitfarms noted that in Quebec Canada, their break-even cost for mining Bitcoin is $7,500 as calculated in the last quarter of 2020. In Argentina, the same cost is $4,125, which is significantly lesser.
In Argentina, cryptocurrency is used to change pesos into dollars to override government sanctions. The "dólar blue" has a ridiculous cut-off rate. Peer-to-peer transactions offer more reasonable rates for the exchange of currency, making the market more competitive in the process. The peer-to-peer transaction system helped raise the transactions from $200,000 in 2019 to $600,000 in 2020.
Argentina's political atmosphere has raised the issue of energy. 75% of the total costs of crypto mining are due to providing energy to the entire system. The strategy for meeting energy costs is also cryptocurrency. Bitcoin and Ether, both the largest cryptocurrencies in the world are used for their peer-to-peer system of exchange. Subsidized energy is bought in pesos, which is then offloaded in Bitcoin at a smaller cost than the official dollar exchange rate.
A similar peer-to-peer cryptocurrency trading platform, LocalBitcoins, noted that between August 2019 and August 2020, there was a whopping 547% increase in the frequency of crypto trading, the highest being the trade of Bitcoins worth $1 million in a week. Paxful is another p2p platform. It noted that there were barely any crypto trades on the platform during the past five years, however, from September 2019 to September 2020, the 12 months duration saw 60,641% increase in trading volume.
NFT Craze in Argentina
Nonfungible tokens are becoming increasingly popular with Sotheby's Metaverse auction pulling in $17.1 million selling tokenized versions of digital art. A piece called "Covid Alien" was sold for a whopping $11.75 million. The same week that multi-million dollar worth of digital art was being sold in a virtual auction, Argentine President Alberto Fernández was found guilty and had to apologize for racist remarks. A similar auction by Christies hosted the artist Beeple who sold a single JPEG for $69 million and thus bagged the title of the third most expensive living artist in the world.
The crazy profitability of NFTs can benefit the Argentines as a lot of South American artists are considered the best at their art while simultaneously being extremely reasonable with their rates. Argentina has the additional plus point of being a world-renowned football league. The Argentine Football Association (AFA) announced that the national football team will put up its own digital token sold in a variety of clubs like River Plate, Racing Club, and Rosario Central. This aspect can further be used for the advantage of the Argentines as each star player could also get their own token, which, thanks to their celebrity status, can bring in massive profits.
Issues in Argentina's Economic Sphere
The president of Argentina gave clear remarks that although the prospect of cryptocurrency was new, thus fearsome, it was also not unwelcomed in Argentina. The central bank, however, issued a statement where the president of the central bank, Miguel Pesce, made it known that on August 11th, the bank would be regulating the Bitcoin intersection with the normal payment system. The stance was that the profit coming from cryptocurrency cannot be mixed with the funds that the traditional market brings in as it would apparently be "prejudicial to the system".
Pesce further said that Bitcoin or any form of cryptocurrency "is not a [real] financial asset, and does not generate any [lasting] profitability.”
The National Securities Commission of Argentina also voiced the same warnings and the federal tax agency also began paying special attention to crypto regulation. Irrespective of the reasoning behind the strict measures taken by the federal agencies to make trading in cryptocurrency harder, it could potentially bring the market down as more and more investors would fear the regulations.
Since August 2019, Argentina's economy and fiat currency has not been steady, thanks to the crash of the stock market following an upset in the presidential elections. The peso dropped in value and, as a result, returns on investments also suffered greatly. The relative value and trading volume of Bitcoins soared at the same heights as one would find in war stricken regions. The inflation has gotten so out of hand that according to Decrypt, $661 today used to be $100 in the very beginning of former president Macri's term.
This downturn in the traditional economy led to a newfound crypto hype among the citizens. The currency is deflating, inflation is soaring and US dollars aren't enough for investing. All these dwindling conditions have caused Argentines to tuck their money away somewhere safely. The best option they have is cryptocurrency and so, the people decided to put all their money into different forms of cryptocurrency. Binance spokesperson reported that on the platform, the number of Argentines investing in cryptocurrency has increased tenfold since 2020.
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