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Decoding the Bitcoin frenzy in Argentina: reality versus rumor

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Is the hype around Bitcoin in Argentina real? Find out why its adoption is slow and what obstacles stand despite global enthusiasm.

In Argentina, economic difficulties have reached critical levels, marked by an annual inflation rate that reached a staggering 276% as of March 12.

As the value of the Argentine peso falls, citizens seek refuge in alternative assets. One such safe haven is Bitcoin (BTC), as Bloomberg reports.

Bloomberg’s findings reveal that Bitcoin purchases on Lemon, the country’s leading retail cryptocurrency exchange, have reached a nearly 20-month high.

Lemon recorded nearly 35,000 transactions in the week ending March 10, double the average weekly volume seen in 2023.

The driving force behind this crypto rush lies in citizens’ search to protect their wealth amid recession and soaring inflation, made worse by President Javier Milei’s “shock therapy” economic policies.

Until February 2024, Argentina had the largest purchases and holdings of stablecoins in Latin America over the previous six months, as highlighted by a report from Bitso, a crypto exchange founded in Mexico.

Digital dollars, particularly USDC and USDT, have almost quintupled in preferences compared to other cryptocurrencies. Argentines have allocated 60% of total crypto purchases to these stablecoins, with only 13% allocated to Bitcoin.

This trend stands in stark contrast to neighboring Colombia, where stablecoins are also influential, accounting for just 31% of purchases.

Let’s take a closer look at how crypto is reshaping Argentina’s economic situation and whether the BTC hype is real.

The Milei Government Crypto Program

Since President Javier Milei came to power in November 2023, Argentina has adopted a new approach to crypto.

Under the previous administration, Argentine cryptocurrency holders enjoyed a flat tax rate of 0% for holdings below $100,000 and 15% for amounts above that threshold.

In January 2024, the government presented a bill titled Basic Law and Initial Measures for Argentine Freedom. As part of this initiative, the bill addresses taxation, particularly regarding crypto.

In particular, Argentine individuals who disclose their cryptocurrency holdings before March 31 will benefit from a favorable tax rate of 5%. However, this rate will gradually increase to 15% by November 30.

Additionally, international cryptocurrency transfers will also be subject to taxation, with rates ranging from 5% to 15%.

While some have welcomed the move, critics say it treats the crypto industry unfairly compared to previous tax rates.

In December 2023, the government announced that contractual obligations and debts could now be expressed and settled in BTC, signaling a potential path for crypto to be used as legal tender.

In January 2024, Argentina further facilitated a rental contract in which the tenant pays the owner in Bitcoin.

Additionally, the launch of cryptocurrency exchange services by OKX and the introduction of Criptodólar, the region’s first stablecoin by local provider Ripio, suggest growing demand.

However, regulatory challenges persist. The government’s agreement with the IMF tends to discourage the use of cryptocurrencies and complicates the situation.

Understanding the rise of crypto in Argentina

As inflation rates rise at an alarming rate, reaching around 30% per month in recent periods, stablecoins have found their way into Argentina’s daily transactions.

According to information from Maxi Raimondi, CFO of Lemon, the demand for BTC and stablecoins like USDC and USDT has increased over time.

Raimondi pointed out that at the start of each month, as people receive their salaries, many choose to convert their funds into stablecoins to mitigate the impacts of inflation and currency devaluation. He said:

“If people buy crypto (like) Bitcoin, it’s really hard to see them sell their Bitcoin. However, if they buy stablecoins – like USDC or USDT, or DAI, whatever – they sell them (cryptocurrencies) in order to pay their bills or (to use) the payment service whose we dispose.

This preference stems from the ease of converting stablecoins to fiat currencies for everyday spending, bills, and everyday transactions. Conversely, Bitcoin tends to be held as a long-term investment, with fewer instances of immediate liquidation, he added.

Meanwhile, despite reports of an increase in Bitcoin purchases, the numbers pale in comparison to the overall population. The “highest volume in 20 months” claim may be sensational, as the absolute numbers are still modest, some Reddit users note.

In a country of 48 million people, the reported 34,700 weekly Bitcoin purchases may seem tiny. In addition, the value of Bitcoin adjusts alongside the peso when the latter strengthens, thus mitigating its role as a hedge against currency devaluation.

Bitcoin adoption in Argentina: a reality check

Despite the hype around Bitcoin, its adoption in Argentina paints a different picture.

As users shared on Reddit threads, the use of Bitcoin in daily transactions in Argentina is minimal. Few, if any, stores accept Bitcoin as a form of payment, making it impractical for anyone looking to use their Bitcoin holdings.

There are several reasons for the limited adoption of Bitcoin in Argentina.

First, there are significant hurdles to overcome in terms of regulatory restrictions and practicality. Users are reporting mandatory know-your-customer (KYC) requirements on most exchanges, including Bitcoin ATMs, limiting anonymity and accessibility.

Additionally, Bitcoin’s fluctuating value, coupled with Argentina’s volatile economic environment, makes it impractical for everyday transactions.

Unlike more stable economies, where fluctuations in the price of Bitcoin may be less pronounced, the risk associated with holding or transacting in Bitcoin is perceived as too high in Argentina.

Additionally, options are limited for those looking to exchange their Bitcoin holdings for local currency. Although there are “cuevas” (informal trading venues) where crypto-peso transactions take place, these often require KYC and may not offer favorable exchange rates.

Instead, crypto users in Argentina appear to be focusing on stablecoins. Users report that many are swapping USDT for USD “blue notes” (unofficial exchange rate) to provide stability in the face of the volatility associated with Bitcoin.

The road to follow

Although there is considerable enthusiasm for Bitcoin, its integration into everyday transactions in Argentina may still be a distant dream. Regulations and economic conditions will play a key role in the evolution of Argentina’s crypto story, determining its direction amid continued economic uncertainty.

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