Argentina, a country of 47 million people, has been grappling with hyperinflation for several decades due to failed policies that have resulted in budget deficits. As the situation continues to worsen, there are concerns about the possibility of a full-scale currency collapse. In light of these circumstances, many are questioning whether Bitcoin (BTC) could offer a solution, given its impressive track record when priced in the local Argentine peso currency.
The Argentine government has a history of resorting to inflating the money supply through bank deposits or government bonds. Over the past three years alone, the country’s aggregate money supply M1, which includes currency, demand deposits, and other checkable deposits, has surged from 2.81 trillion pesos to a staggering 10.66 trillion pesos, representing a 277% increase.
Despite these economic challenges, there is some positive news for Bitcoin investors in Argentina. The price of Bitcoin on domestic exchanges has soared to 19.6 million Argentine pesos, up from 14.2 million when BTC reached its all-time high in US dollars in November 2021. This means that despite a 61.5% drop in BTC’s value against the US dollar, investors in Argentina have still managed to accrue gains of 38% when measured in the local currency.
However, there might be a discrepancy when comparing the Bitcoin price in pesos on domestic exchanges to the price found on platforms like Google or CoinMarketCap. The reason behind this lies in the complex official currency rate for the Argentine peso. The country has an official rate known as the “dollar BNA,” set by the central bank and used for all government transactions, as well as imports and exports.
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When multiplying the BTC price on North American exchanges in US dollars by the official Argentine peso rate, the theoretical price of Bitcoin in pesos is nearly double the actual price on cryptocurrency exchanges. This phenomenon extends beyond cryptocurrencies and affects other global assets like stocks, gold, and oil futures.
The Argentine government manipulates the official foreign exchange rate to strengthen the peso and stabilize the economy. Their goal is to reduce capital flight, curb speculative trading, and make it more expensive to purchase foreign currency and store wealth in US dollars. However, this manipulation ultimately contributes to inflation and hampers economic growth. It fosters an unofficial and unregistered market known as the “dollar blue,” which leads to varying exchange rates and undermines financial transparency.
In terms of Bitcoin’s performance as a store of value for investors in Argentina, the picture is mixed. According to Bitso exchange prices in Argentine pesos, Bitcoin has gained 150% over the two years ending in September 2023, moving from 7.84 million pesos to 16.6 million pesos. However, the accumulated official inflation rate during this period has exceeded 300%, meaning that Bitcoin has not been a reliable store of value.
Comparatively, those who opted for US dollars, whether in traditional form or stablecoins, have seen their holdings increase by 297% during the same period, effectively matching the inflation rate. This discrepancy is likely to favor the adoption of stablecoins in the region over Bitcoin. However, the volatility of stablecoins could pose risks as well.
Despite the challenges, the economic situation in Argentina has provided an opportunity for investors to learn about the advantages of self-custody and scarcity, as the local currency continues to lose its value due to inflation. However, as long as the US dollar maintains its purchasing power by keeping up with local inflation, there is limited room for Bitcoin to become the preferred store of value for Argentinians.
In conclusion, Argentina’s hyperinflation and economic challenges have raised questions about the potential adoption of Bitcoin as an alternative currency. While Bitcoin has shown impressive gains when priced in the Argentine peso, the discrepancy between the theoretical price and the actual price on cryptocurrency exchanges highlights the complexities of the official currency rate. Additionally, the performance of Bitcoin as a store of value in Argentina has been overshadowed by the significant inflation rate, leading many to consider stablecoins as a possible alternative. However, the viability of stablecoins and their potential risks should also be taken into account in the context of the Argentine economy.
