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As the Argentine economy experiences record inflation, its people are turning to Bitcoin as a way to protect their economic security.
The Argentine Republic is currently experiencing the worst inflation rates in the world. The country's economy has experienced low levels of inflation, somewhere around 25%, for decades. However, the pandemic has exacerbated the downward trend to devastating effects. Inflation reached 70% in 2022, then reached 100% the following February, but 2023 has proven to be an extremely deadly year for the Argentine economy. Inflation rates crossed the 200% point by the time Bitcoin-friendly President Javier Miley first took office in December, and the rate currently stands at 274%. With numbers like these, ordinary citizens' wages and savings have evaporated overnight, and people are looking to more radical solutions to get their lives back on track.
In a particularly encouraging development, ordinary citizens are turning to Bitcoin in record numbers for its classic use case as a store of value. As a country with a high Bitcoin acceptance rate, Argentina has doubled down on the decentralized currency as the most popular local exchange recorded 20-month highs in trading volume. The Lemon Cash exchange in question claimed that bitcoin transactions in the first full week of March 2024 were more than double the average price throughout 2023. Belo, another prominent exchange based in the country, reported year-over-year increases that were closer to tenfold. A particularly interesting issue in development is that Bitcoin is not only replacing the dollar, but also dollar-backed stablecoins which have seen trading volumes drop by 60-70%. “A user decides to buy Bitcoin when he sees news that the currency is rising, while a stablecoin is more realistic and is often used for transactional purposes, as a way to make payments abroad,” said Belo CEO Manuel Boudrot.
Sarcastically, Bloomberg As he claims, some of President Miley's economic positions did influence the shift from the dollar to Bitcoin, but through some unexpected and indirect means. The radical libertarian began his administration with a series of wide-ranging reforms to try to bring the situation under control, cutting spending and attempting to break up or privatize a variety of state-owned enterprises. One of the specific goals of his administration so far has been to build a surplus in the federal government's budget, for several reasons: using these funds more deliberately, reaching targets based on agreements with the International Monetary Fund (IMF) and of course initiating a new policy. Positive trend in economic statistics in Argentina. One element of this surplus policy was the construction of a corresponding reserve of US dollars, which limited their circulation within the country. The peso-dollar exchange rate has taken a serious hit, and the once-popular store of value has become less attractive than the soaring Bitcoin.
Reports from Chainalysis put some hard numbers on these general trends: Argentina leads all Latin American countries in terms of transaction volume, and is second overall in terms of grassroots adoption. In this report, Lemon Cash representatives estimated that the number of Argentines using Bitcoin or other cryptocurrencies is about 5 million, out of a population of 45 million! These impressive numbers are not just the result of a brief period of economic distress, but should instead be viewed as a turning point: Bitcoin acceptance has been quietly growing for years, and now the crisis provides the leap to becoming a digital currency. Completely mainstream Fiat alternative. The rate of growth has been so astonishing that an unexpected “cousin” to the industry has been developing, with cryptocurrency-related fraud and phishing activity increasing five-fold. Clearly, the market is full of people new to the chaotic Bitcoin ecosystem.
In connection with the rise in hate activity targeting new Bitcoin users, Argentina has begun passing some new regulations related to the industry. The Senate unanimously passed a new law in March, opening a new set of standards that virtual asset service providers must adhere to. The standards are generally related to various consumer protection and anti-fraud precautions, with the country's main securities agency set to implement these new standards. The existing Bitcoin community reacted to these new laws with panic, fearing that this legislation would lead to market consolidation. After all, larger companies will have the resources to comply with these new requirements immediately, while smaller startups may find themselves overwhelmed. However, lawmakers are also working on a series of tax breaks for digital asset holders, which may help alleviate some of this hostility.
But it is strange that President Miley was absent from these proceedings. The man espoused some pro-Bitcoin views during the election campaign, and has a general economic philosophy that aligns with some of Bitcoin's core fundamentals, but he nonetheless had little public presence in many Bitcoin developments. Even the occasional Bitcoin rally fueled by his own politics has not prompted him to make public statements about the situation. However, Miley has been busy with a far-reaching series of economic reforms and austerity policies, balancing global market confidence with a worrying rise in poverty rates across several measures. Miley has managed to slow hyperinflation somewhat, but at a great cost: reduced government spending pushes more citizens to the brink. like Reuters As reported, the crisis is far from over, as sales, activity and production are all on a downward slope.
In other words, it seems likely that Miley personally has Bitcoin in mind, as he has a much greater priority on controlling the economy and mitigating the potential for social unrest. His overall popularity remains resilient despite these adversities, but an issue as controversial as Bitcoin transfer may be just a fight he doesn't want to start. Once the dust settles, we may look forward to him endorsing Bitcoin again, but nothing is really certain. However, despite its lack of direct Bitcoin-friendly initiatives, the legislature is still taking positive steps in its own right. It seems unlikely that Argentina will become hostile to Bitcoin in the face of this inflation, as is the case with the crackdown in Nigeria amid the currency slowdown.
Ultimately, the future of Bitcoin in Argentina lies with the Bitcoin users themselves. The economic crisis has provided society with record levels of adoption, and Bitcoin has transcended the household name. Will this trend continue as the economy recovers? Will the emerging community of Bitcoin-related companies and developers end up becoming a dynamic and profitable industry? There are too many variables to say with certainty. However, Bitcoin is a chaotic market in its own right that was founded in the wake of the economic problems the United States faced after the 2008 crash. The global community has demonstrated a spirit of innovation and adventure that can lead to success in even the most marginal situations. In other words, Bitcoin is on the rise globally, and there is no reason to doubt that it will not continue to rise in Argentina as well.
