Is the Bitcoin buzz in Argentina genuine? Uncover the reasons behind its slow adoption and the obstacles it faces despite worldwide enthusiasm.
In Argentina, the economic crisis has escalated to alarming levels, with an annual inflation rate skyrocketing to a staggering 276% by March 12. As the value of the Argentine peso plummets, citizens are turning to alternative assets for refuge. One of these safe havens is Bitcoin (BTC), according to a report by Bloomberg.
Bloomberg’s research shows that Bitcoin purchases on Lemon, the country’s leading retail crypto exchange, have surged to nearly 20-month highs. Lemon recorded almost 35,000 transactions in the week ending on March 10, doubling the average weekly volume seen in 2023.
The driving force behind this rush into crypto lies in the citizens’ desire to protect their wealth amidst a recession and skyrocketing inflation, worsened by President Javier Milei’s aggressive economic policies. Until February 2024, Argentina had the highest purchases and holdings of stablecoins in Latin America over the previous six months, as highlighted in a report by Bitso, a Mexican-founded crypto exchange.
Digital dollars, particularly USDC and USDT, were the preferred choice over other cryptocurrencies by almost five times. Argentinians allocated 60% of their total crypto purchases to these stablecoins, with only 13% going to Bitcoin. This trend sharply contrasts with neighboring Colombia, where stablecoins account for only 31% of purchases.
Let’s delve deeper into how crypto is reshaping Argentina’s economic landscape and whether the hype around BTC is justified.
The Milei Government’s crypto initiatives
Since President Javier Milei took office in November 2023, Argentina has taken a new approach to crypto. Under the previous administration, crypto holders in Argentina enjoyed a fixed tax rate of 0% for holdings under $100,000 and 15% for amounts exceeding this threshold.
In January 2024, the government introduced a proposed bill called the Law of Foundations and Initial Measures for Argentinian Liberty, addressing taxation, especially concerning crypto. Individuals in Argentina who disclose their cryptocurrency holdings by March 31 will benefit from a favorable tax rate of 5%. However, this rate will gradually increase to 15% by November 30.
Moreover, international cryptocurrency transfers will also be taxed, with rates ranging from 5% to 15%. While some welcomed this move, critics argue that it unfairly targets the crypto sector compared to previous tax rates.
In December 2023, the government announced that contractual obligations and debts can now be expressed and settled in BTC, indicating a potential use of crypto as legal tender. In January 2024, Argentina facilitated a rental contract where the tenant pays the landlord in Bitcoin.
Additionally, the launch of crypto exchange services by OKX and the introduction of Criptodólar, the region’s first stablecoin by local provider Ripio, suggest a growing demand. However, regulatory challenges persist, and the government’s agreement with the IMF tends to deter crypto use, complicating the situation.
Understanding Argentina’s crypto surge
With inflation rates soaring at an alarming rate, stablecoins like USDC and USDT have found their way into everyday transactions in Argentina. According to Maxi Raimondi, Lemon’s chief financial officer, the demand for both BTC and stablecoins has increased over time.
Raimondi explained that at the beginning of each month, as people receive their salaries, many convert their funds into stablecoins to mitigate the effects of inflation and currency devaluation. This preference arises from the ease of converting stablecoins into fiat currencies for daily expenses and bills, while Bitcoin is often held as a long-term investment with fewer instances of immediate liquidation.
Despite reports of a surge in Bitcoin purchases, the numbers are modest compared to the overall population. In a country of 48 million people, the reported 34,700 weekly Bitcoin purchases may seem insignificant. Moreover, Bitcoin’s value adjusts with the peso, limiting its role as a hedge against currency devaluation.
Bitcoin adoption in Argentina: a reality check
Despite the hype around Bitcoin, its adoption in Argentina tells a different tale. As shared by users on Reddit, Bitcoin’s usage in day-to-day transactions within Argentina is minimal, with few stores accepting it as a form of payment.
There are significant hurdles to overcome, including regulatory restrictions and practicality. Mandatory know-your-customer (KYC) requirements on most exchanges, including Bitcoin ATMs, limit anonymity and accessibility.
Moreover, Bitcoin’s fluctuating value, coupled with Argentina’s volatile economic climate, makes it impractical for everyday transactions. The risk associated with holding or transacting in Bitcoin is perceived as too high in Argentina, where options for exchanging Bitcoin for local currency are limited.
Instead, the focus among crypto users in Argentina seems to be on stablecoins. Many exchange USDT for USD “blue notes” for stability over the volatility of Bitcoin.
The road ahead
While there is excitement surrounding Bitcoin, its integration into everyday transactions in Argentina may still be a distant dream. Regulations and economic conditions will play crucial roles in shaping Argentina’s crypto landscape amid ongoing economic uncertainty.