Bitcoin has emerged as a beacon of light in Argentina’s financial landscape amid economic instability and hyperinflation. The cryptocurrency has recently surpassed past milestones, reaching extraordinary highs. This stratospheric ascent is not just a tribute to the global rebirth of interest in digital currencies, but it is also a sharp reminder of Argentina’s specific economic problems throughout the years.
As the country struggles with high inflation and a volatile peso, Bitcoin’s sudden notoriety is capturing the attention of both investors and the general public.
Argentinians find refuge in Bitcoin?
Due to failed policies that resulted in budget deficits, Argentina has experienced hyperinflation for decades. Argentina, home to 47 million people, is becoming more likely to have a full-fledged currency collapse as time passes. But, considering Bitcoin’s stellar performance when priced in Argentine pesos, what are the possibilities of increased adoption?
Throughout its history, the Argentine government has inflated the money supply by using bank deposits or government bonds. Notably, Argentina’s aggregate money supply M1 has surged 277% in three years, from 2.81 trillion pesos in July 2019 to a whopping 10.66 trillion pesos.
On domestic markets, Bitcoin’s price has grown to 19.6 million Argentine pesos, up from 14.2 million in November 2021, when BTC reached its all-time high in US dollars. This means that despite a 61.5% drop from $69,000, investors in Argentina have earned 38% in local currency returns.
However, while searching for Bitcoin’s price in pesos on Google or CoinMarketCap, one may get a different result. This disparity is explained by the Argentine peso’s official exchange rate, which is more complex than most investors are accustomed to.
The official rate, known as the “dollar BNA,” is utilized for all government transactions as well as imports and exports. Argentina’s central bank determines this rate.
Consider how the Bitcoin price in Argentine pesos, as traded on cryptocurrency exchanges, is nearly twice the potential price of Google.
This price is calculated by multiplying the BTC price in US dollars on North American exchanges by the official Argentine peso exchange rate given by the local government. In addition to cryptocurrencies, this phenomenon affects other extremely liquid international assets such as equities, gold, and oil futures.
Argentina’s Bitcoin Future
After the Fed announced a pause to interest rate hikes on Tuesday, Bitcoin regained $27,500 for the first time in September. BTC miners have benefited from the recent price spike, according to on-chain data.
Bitcoin Miners possessed 1,844,854 BTC in reserves as Bitcoin crossed $27,000 on September 19. However, they sold 3,495 BTC less than 72 hours later, bringing their total balance to 1,841,350 million BTC.
The government wants to stabilize the economy, curb capital flight, and reduce speculative trading by increasing the cost of purchasing foreign currency and storing wealth in US dollars by artificially strengthening the official rate in favor of the Argentine peso. In order to improve the trade balance, this policy may raise import prices while increasing exports.
Manipulation of the official foreign exchange rate, as seen in Argentina, ultimately contributes to inflation and impedes economic growth. First, it encourages the formation of an unofficial and unregistered market, sometimes known as “dollar blue,” which encourages illegal activity, hinders financial transparency, and inhibits foreign investment.
This results in different currency rates depending on the market and whether or not the government and formal institutions are participating.
In the two years ended September 21, the value of Bitcoin in Argentine pesos surged by 150%, climbing from 7.84 million pesos to 16.6 million pesos. The cumulative official inflation rate throughout this time period, however, has surpassed 300 percent, rendering the notion that Bitcoin has been a reliable store of value inaccurate.
Notably, individuals who chose US dollars, whether in their original form or as stablecoins, raised their holdings by 297% throughout the same period, effectively matching the inflation rate. This comparison is restricted to the two-year period from September 2021 to September 2023.