Economic Uncertainty, Restrictions in Argentina Show Power of Bitcoin
In the weeks following dramatic new restrictions regarding the acquisition of both bitcoin and USD in Argentina, the local crypto community has reacted in a number of interesting ways, showing both the possibilities of Bitcoin as a financial tool in the face of government constraints as well as the decentralized crypto asset’s resilience to measures against it.
The Evolving Bitcoin Landscape in Argentina
The temperature has steadily been rising in the Argentinian crypto space for several months of 2019, creating a clear timeline for the increased acceptance of bitcoin and other alternative assets. The nation’s economy and fiat currency have been especially wobbly since August 2019 as the stock market hemorrhaged during an upset presidential election. In addition to damaging the return value on investments, this also caused the peso’s value to plummet. Very soon after this initial trigger, the relative valuation and trading volume of bitcoin spiked to levels comparable to conflict-stricken regions like Hong Kong.
The Central Bank of Argentina, run by the national government, attempted to stabilize the situation first by imposing limitations on the purchase of USD. Beginning by limiting Argentinians to only $10,000 in purchases per month in September 2019, the bank added additional restrictions on October 31, 2019. In addition to limiting the amount of USD that a citizen can acquire per month to $200, the bank also announced that bitcoin could only be purchased by means of “funds transferred from a bank account.”
Since this time, the relative valuation and trade volume of bitcoin have spiked yet again in Argentina, even compared to the initial increase when the peso first hit shaky territory. The bitcoin price was reported to reach as high as $12,759 on an Argentinian exchange in November 2019, marking a 38 percent premium compared to other exchanges around the world. In that same month, Argentina exchanged an estimated 19.4 million pesos on LocalBitcoins.
To make better sense of the dynamics of these changes, Bitcoin Magazine reached out to several Argentinian bitcoiners to learn more about their firsthand experiences.
Santiago Siri is the founder of the Democracy Earth Foundation and has been involved in both crypto-related political activism and the largest bitcoin exchange in Latin America, Bitex, for several years. Having moved to New York from Argentina, Siri has maintained a base of connections across the international crypto space and particularly in his country of origin.
Lautaro Dragan, on the other hand, is the lead developer for decentralized media protocol Po.et and has in-depth experience with both the Argentinian banking system and the situation on the ground as he lives in Buenos Aires.
Searching for Alternatives
Siri claimed that there is a direct correspondence between the suppression of the dollar and the rise of bitcoin in Argentina.
“Since the peso is a currency that lacks trust from the people due to its high inflation rate (about 50 precent), most people save money in dollars,” Siri said. “But keeping dollars in the bank can be risky since this is not the first time this happens. Back in 2001, the country lived one of its most traumatic days when a similar limit was imposed. The growth of adoption in Bitcoin is a no brainer to most: censorship resistant money that cannot be taken by the government matters to the average Argentine that does not want to see their money being taken away by the government.”
This dynamic is of particular importance to regions of global instability, he added.
“When people start stashing cash, that also increases the risk of violent assaults and overall insecurity of the country,” Siri explained. “Back in 2001, a rise in ‘express kidnapping’ emerged from criminals chasing people taking their money out of the bank … so the ability to keep the money in an immutable ledger and protected by a code no one can break is also very beneficial there.”
Dragan concurred with this analysis but also added some sobering commentary.
“It’s a bittersweet feeling,” he claimed, “because even though we’re happy we have Bitcoin to help us in this situation, nobody is happy about the restrictions, since they affect everyone for the worse and are a symptom of deeply-rooted economic issues.”
Dragan said that hyperinflation in the Argentine peso has been a regular feature of the country for his entire life, since “reading my high school history book and seeing in it a black-and-white picture of a panettone selling for 1 million pesos, and [growing] up on stories of people losing most of their savings due to them being force-converted to ARS and inflation immediately striking afterwards, or hyper-inflation rendering your entire salary worthless.”
He explained that many Argentinians turn to alternative currencies as a chance to access the most basic features of financial security.
“The sad truth is that, as things are, most people can’t save a single cent,” Dragan said. “The ones who can save buy USD to prevent their savings from being eaten by hyperinflation, and the lucky ones who work digitally look for remote work paid in USD, GBP or EUR to prevent their salaries from being eaten by hyperinflation.”
After many personal difficulties with regularly using foreign fiat currencies or opening up a U.S. bank account, Dragan said that he began to turn increasingly to cryptocurrency.
“Even though bitcoin is too volatile to be a good store of value right now, it’s possibly the best means of transferring value humanity has ever seen,” he said. “And that alone is such a powerful tool that makes a case for crypto on its own, but it will probably also ensure it will live long enough for it to become a good store of value too.”
Argentina’s Bitcoin Community
Siri described the Argentinian cryptocurrency space as “a very active community that has grown big very fast,” while noting that there is room for Bitcoin to grow.
“Probably we are still a long way from making Bitcoin a mainstream thing, but you’ll probably find among the hacker culture of Buenos Aires some of the best cryptocurrency engineers in the world,” Siri said. “It’s worth noticing the emergence of startups like Zeppelin (leading smart contract auditors in the world) or RSK (smart contracts with a BTC sidechain) that emerge from that hacker culture. I’m currently helping to bring Devcon 6, the annual event held by the Ethereum Foundation, to Buenos Aires in 2020.”
Dragan concurred with this assessment.
“In Argentina, we have had a few small businesses accept bitcoin for several years, but we’re now seeing larger businesses joining too,” he said. “Last year, Garbarino Viajes, one of Argentina’s biggest travel agencies, took the lead on this, accepting bitcoin as a means of payments. This year, Mercado Libre, an Argentine company that operates in all of Latin America, started accepting bitcoin in Brazil. More large business are sure to follow.”
Dragan added that more institutional adoption could be forthcoming.
“I’m confident we will see more of this in the 2020s, and traditional banks will start feeling the pressure and want in,” he said.
To this end, Bitex, the Latin American cryptocurrency exchange that Siri is a partner in, has facilitated smoother entry of private banks into the wider crypto-economic system.
“The regulation announced by the Central Bank specifically forbid buying cryptocurrency with credit cards but said nothing about direct bank transfers,” Siri said. “Bitex has been one of the pioneering bitcoin exchanges in the local market there and has been able to establish solid relations with banks in the country. Still, a lot of bank managers, due to age or lack of information are a bit skeptical about accepting services willing to operate using BTC … But, thankfully, this is beginning to change thanks to the reputation built by companies like Bitex.”
Dragan also noted some mixed institutional progress in Bitcoin adoption, noting the potential for regulatory clarity from the Administración Federal de Ingresos Públicos (AFIP), Argentina’s revenue service, though with some skepticism about how much of a help this will ultimately be for local Bitcoiners.
“I know the AFIP, our tax authority, is working on ways to properly support cryptocurrencies, and the new policies and laws make it clear that the government is aware they need to do something about it, but they still don’t understand it well and isn’t a high priority given all the issues our country is facing, so adoption grows slowly but steadily,” he said.
Of course, the cryptocurrency space in Argentina is not only turning to bitcoin, largely due to the perception Dragan highlighted that the asset is better at transferring value than storing it long-term. The Ethereum-based stablecoin DAI, Dragan claimed, “has been growing like crazy” in Argentina. Siri agreed with this, telling us, “Most people cannot afford big swings on their savings. That’s why adoption of DAI is growing in Argentina: you want a currency that cannot be taken away by a bank, that is pegged to the dollar and that is stable in order to be able to use it for saving.”
“Bitcoin as a Financial Battleground”
Siri also commented on how crackdowns on Bitcoin can play out on a global economic stage.
“It’s interesting to see how Bitcoin is being weaponized by Nation-State actors,” he said. “Because Bitcoin can be used either for good or for bad, we can find some extreme cases on how various sanctioned nations like Venezuela and North Korea have tried to use cryptocurrency both within their own borders and when dealing with other nations.”
“I’m not stating all this to say bad things about Bitcoin: I’m a long-time HODLer myself,” Siri continued. “But it is important to understand how Bitcoin is becoming the battleground of a financial battle that is being pushed by the USA and its economic sanctions mechanism.”
Even with the price already rising in Argentina due to these internal pressures, we can already see how this “bitcoin as a financial battleground” thesis has played out more recently. On December 2, 2019, U.S. President Donald Trump announced a new set of tariffs on metal products, especially steel and aluminum, from Argentina. On December 9, 2019, the Argentinian president appointed a new economy minister to his cabinet, who has repeatedly voiced skepticism of institutions like the International Monetary Fund with close ties to U.S. international economic designs. Whether motivated directly by these developments or not, fears of further peso inflation and economic downturn have likely caused bitcoin’s value in Argentina to spike yet again: LocalBitcoins trading volume in Argentina reached a new all-time high of 22 million ARS in the first week of December 2019.
As a parting sentiment, Siri wanted audiences abroad to appreciate Argentina’s unique and valuable relationship with financial assets across the board.
“Argentina will break every single financial system you can think of,” he claimed. “Whether it’s the Argentine peso, the US dollar, Bitcoin, Ethereum or anything that ends up coming next … we Argentines are going to make sure we figure out how to hack it.”
While it’s noteworthy that, for the average citizen, a stablecoin like DAI might be a more reliable way to protect paychecks and savings than either the fiat currency or bitcoin, the past few months of increasing bitcoin trading volume and adoption among economic uncertainty in Argentina illustrate a real-life use case for the technology.
“If Bitcoin is to supplant the USD, I’m sure it won’t happen for decades,” Dragan concluded. “But the key takeaway here is that we don’t need it to. Bitcoin is an excellent means of transferring value as it is. Even in the hypothetical case that we discovered it is impossible for it to scale, it already is good enough.”