Argentina is the latest South American country to consider cryptocurrency. Since El Salvador adopted bitcoin as a legal lender, crypto discussion has heated up in Central and South America, especially in Argentina, as the digital currency could be an alternative to the devaluation of the Argentine peso. As Decrypt says, bitcoin also offers “indirect exposure to the US dollar.”
Argentine President Alberto Fernandez has made several favorable comments about cryptocurrencies, implying that the country could use bitcoin to combat its high inflation.
Argentina Considers Bitcoin Adoption
President Alberto Fernandez commented on cryptocurrencies in an interview on the Caja Negra YouTube channel, which means the country is open to integrating them into its financial system.
While Chief Fernandez has expressed both support and caution for bitcoin and other cryptocurrencies, the president of Argentina’s central bank, Miguel Paes, regards bitcoin as a speculative asset with volatile profits.
A major point of debate and friction is when and how bitcoin should be used as a means of payment, especially in economies characterized by high cash use and inflation levels.
Argentina’s inflation rate is currently around 50%. The notion of using bitcoin as a hedge against inflation stems partly from the fact that there is a finite amount of it that can be made – 21 million, to be exact. There is some level of price associated with the shortfall – where that level is remains to be seen.
When pitted against the uncertainties of economies battling inflation and less-than-stable governments, the fact that bitcoin exists “separately” from the central bank system can be attractive.
Argentina announced earlier this year that it had started rolling out Transferencia 3.0, a nationwide digital payments system based on QR codes. Accepting bitcoin in commercial/retail/general payment settings may be seen by central bankers as muddying the waters; The introduction of a CBDC would detract from the existing digitization efforts.
In Argentina, the president and central bankers hold opposing views on the role of crypto (and CBDCs) in the world, indicating that there is no clear roadmap.
crypto mining boom in argentina
Decades of inflation have devalued the Argentine peso, and there is little sign that the situation will improve. As a result, many in Argentina have turned to cryptocurrency as a haven. Bitcoin and Ethereum have historically sold at a premium in Argentina as investors scramble to protect their funds.
Argentina’s bitcoin miners are profiting on the inefficiencies of the country’s interventionist economy, fueled by memories of currency crashes and powered by government-subsidized electricity.
While crypto mining has exploded in several countries this year, miners in the South American country are benefiting from ultra-low utility rates and a revival of capital controls. Various experts believe that this is just another example of Argentina’s perennial ability to manipulate its heretical policies to its advantage.
Bitso, a cryptocurrency exchange based in Mexico that recently expanded to Argentina, has already seen a 68 percent increase in trading volume on its platform in the third quarter of 2020 compared to the second. Bitso’s relocation to Argentina also helped the platform reach 1 million users earlier this year.
The miners benefit from the country’s long-standing residential electricity subsidy, a policy designed to score political points with voters, but it is fueling tensions within the ruling Peronist coalition.
Even though Argentina is a net gas importer, consumer electricity bills in Argentina account for only 2% to 3% of average monthly income, compared to almost twice as high in other Latin American markets such as Chile, Colombia or Brazil. Fernandez who is an analyst at Balanj Capital Valores in Buenos Aires.
Furthermore, with annual inflation of around 50% and currency restrictions limiting individuals to only $200 in currency conversions per month, overwhelming demand for any store of value is causing a decline in the peso in parallel markets, where It is currently around 70% vulnerable. higher than the official rate.
No matter how volatile bitcoin is in the coming months, individual mining in Argentina will probably be profitable as long as the government pays at least a portion of the electricity bill.
In short, Fernandez said that the country should not rule out cryptocurrencies. Ultimately, they can bring about significant progress in their inflation problem because they are a more “hard” currency than their fiat counterparts.
There is a lot going on in Argentina’s crypto world, and it has managed to fly somewhat under the radar so far. Not only are bitcoin and the rest of the crypto asset interesting for financial speculation, but they have also generated a massive hype that has sparked creativity and innovation. Argentina have a very real chance of being at the fore once again.
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