Partnered With:

Forbes: Why Are Argentines Embracing Cryptocurrency?

Forbes

Read this article in 19 Minutes

Argentina is a unique market where many people simply buy USDT.

Original title: Why Inflation Battered Argentinians Are Turning To Crypto

Original author: Javier Paz, Forbes

Original translation: Luffy, Foreisght News

In recent years, Argentina has been labeled as inflationary, just like their world-famous roast beef. In the past 12 months, the country's cumulative inflation rate has reached 276%. In fact, a typical manifestation of Argentina's soaring inflation rate is that residents' eating habits are changing, and their demand for beef has declined, turning to cheaper proteins such as pork and chicken. Some observers believe that the price of beef in Argentina will rise by 600% this year, and steak is no longer a daily staple for Argentines.

Monthly inflation in Argentina

Although Argentines are only now seeking an alternative to beef, they have been trying to get out of the depreciating peso for decades. In fact, Argentines have been buying dollars through black market institutions for 50 years. The most famous black market operators have even appeared on Florida Avenue, a main street in the capital, Buenos Aires.

The black market is a last resort for Argentines, who may be deceived. At these unauthorized and unsafe money exchange offices, Argentines sometimes exchange pesos for dollars at twice the government-published rate. The current rate is 41% higher than the official 954 pesos to the dollar. And that's not the only risk. Other major risks include customers being robbed by counterparties or receiving counterfeit money, according to El Nacional, one of the two major local newspapers.

But now, a new way to access dollars has emerged: cryptocurrency. In fact, Argentina has a higher rate of cryptocurrency adoption (the percentage of people using cryptocurrencies as a percentage of the total population) than any other country in the Western Hemisphere. A study by Forbes in partnership with data analytics firm SimilarWeb found that of the 130 million visitors to the world's 55 largest exchanges, 2.5 million were from Argentina.

Crypto Adoption in the Americas

Argentinians don't play Memecoin or try to get rich overnight with the next hot token. Instead, they typically buy and hold Tether (USDT), a synthetic dollar with a market cap of $112 billion. "Argentina is an outlier market, where many people just buy USDT," said Maximiliano Hinz, head of Latin America at cryptocurrency exchange Bitget. "We don't see this happening elsewhere. Argentinians buy spot USDT and then do nothing with it."

While stablecoins like SUDT seem like the perfect way out of Argentina’s inflation woes, they come with certain risks. The country has yet to enact any regulations to regulate this wild industry, and the world’s most trusted exchanges and marketplaces (Forbes selection) are not the most widely available options for Argentines.

Argentina’s new liberal president, Javier Milley, has said he’s open to dollarization in Argentina. On May 17, he told a business conference that the country is moving toward a “competitive currency system” where everyone can choose which currency to use for payments and transactions. He expects this will lead to Argentina “using the peso less and less, and when the peso is almost stopped, we will move toward dollarization and eliminate the central bank so that corrupt politicians can’t steal wealth by printing money.”

USD stablecoins align with the idea of dollarization, but buyers must find a safe way to buy, hold and use them. Argentina offers no reliable safeguards for cryptocurrency users.

Argentina has a higher rate of cryptocurrency adoption than any other country in the Western Hemisphere. According to a Forbes study of data from the website Similarweb, 2.5 million of the 130 million visitors to the world's 55 largest exchanges are from Argentina. In addition, the crypto data analysis company Chainalysis noted in a report late last year that Argentina "leads Latin America in raw trading volume, with an estimated $85.4 billion in trading value as of July 2023."

However, Argentina's chosen stablecoin, USDT, has a complicated history. Tether, based in the British Virgin Islands, is cautious about its internal operations, has never conducted an audit, and does not disclose which banks it uses. In 2021, the CFTC and New York Attorney General forced Tether to pay $41 million and $18.5 million in fines, respectively, for falsely claiming that USDT was pegged to the dollar on a one-to-one basis. In a country still plagued by triple-digit inflation, none of these red flags seemed to have attracted enough attention from users.

The risks don’t stop there, but also include exchanges and markets that serve Argentina. In May, Forbes ranked the world’s 20 most trusted cryptocurrency exchanges, and Argentina’s top five cryptocurrency providers—Binance, eToro, BingX, HTX, and Bitget—were not included due to a lack of domestic regulatory oversight. Binance is the most visited exchange website, with more traffic from Argentina than any other country. But Binance doesn’t even have a national regulator overseeing it, let alone a local regulator.

The most visited cryptocurrency exchange by Argentinians

Binance website visitor sources

How dangerous is it to do business with Binance? We know that Binance previously admitted to violating US money laundering regulations, resulting in a $4.3 billion fine and long-term monitoring by US regulators to prevent such incidents from happening again.

But that's not all. Forbes' previous investigation of Binance also showed that customers' online account balances were unreliable because the final decision on the tokens they held came from the company's internal books, which were not open to the public. (Translator's Note: Binance announced Proof of Reserves) The company once transferred funds outside the exchange as collateral for issuing stablecoins. However, in Binance’s favor, it has not fallen into bankruptcy, has been largely able to process customer withdrawals, and is still operating normally.

It is difficult for the average Argentine or other novice investor to understand and appreciate these risks. Fernando Apud, a software engineer living in the country’s northern Tucumán province, recently evaluated websites such as local firm Cocos Capital and the larger and more complex Binance website. While these sites tout security and convenience as their main selling points, he found that even large sites like Binance are reluctant to disclose basic information, such as whether they are registered to do business in Argentina and who actually owns the company.

When Forbes asked Rose Zimler of Binance’s Spanish communications team about Binance’s status in Argentina, she said the company is “in close contact with the authorities” but has not yet registered in the country. She did not say why it is not registered or whether it intends to register. Binance has 18 licenses around the world, she said.

Binance is not alone. None of Argentina’s other top cryptocurrency exchanges are registered with the national securities regulator, the Comisión Nacional de Securación (CNV). They generally tell Forbes that they are trustworthy to their customers because they have a proven history of operations. BingX brand ambassador Pablo Monti, who represents the exchange’s communications team, declined to reveal the nature of the platform’s regulatory compliance in Latin America, but told Forbes on May 20: “As we approach our 6th anniversary, BingX is expanding further into Argentina and other countries such as Turkey and Vietnam.” A company spokesperson for eToro did not address the issue of non-registration. However, she said: “As a business regulated by financial authorities in multiple jurisdictions around the world, eToro is committed to complying with applicable rules and regulations in the jurisdictions in which it operates.” Bitget is a cryptocurrency exchange that counts world-renowned Argentinian soccer star Lionel Messi as its brand ambassador. “To my knowledge, there are no licensing requirements in the Latin American countries where Bitget operates,” said Maximiliano Hinz of Bitget. Finally, HTX, an exchange associated with Justin Sun, did not respond to email inquiries about its Argentinian operations.

In addition to cryptocurrency exchanges, Argentines can also use cryptocurrencies through domestic companies. These companies allow users to buy and spend cryptocurrencies through prepaid cards, such as Lemon and Buenbit. However, these companies also have regulatory loopholes. In the latest Chainalysis Latin America report, Alfonso Martel Seward, head of compliance at Lemon Cash, said that his company has about 2 million Argentine users, while the country has about 5 million crypto users in total.

Argentines have had enough of the peso. The depreciation of the peso has caused them considerable trouble since the country ended its one-to-one peg to the dollar in January 2002. Since then, years of overspending and debt defaults have plagued the peso, which fell to around 4 pesos per dollar a decade after the peg was broken, and then to 64 pesos per dollar as the Covid-19 virus took hold in early 2020.

While a weaker peso boosted the country’s foreign trade in the early 2000s, that benefit faded after 2009, according to Bloomberg data. Inflation-adjusted gross domestic product has fallen an average of 0.1% a year over the past decade, with only four years of growth.

Why is Argentina in trouble? In addition to a bloated public sector with 3.5 million employees and a lack of commitment to fiscal austerity, external factors such as weather patterns (La Nina) have had a major impact on food exports (the country’s main source of hard currency) last year and this year. Argentina has experienced its worst drought in the past 60 years. “It’s unprecedented that all three crops, soybeans, corn and wheat, failed,” said Julio Calzada, director of economic research at the country’s main agricultural exchange. “We’re all waiting for the rain,” and crop losses mean less dollar revenue, which drives up food prices, increases default risk and interest rates. In his inauguration speech on December 10, 2023, Milley made clear that he planned to end the previous approach. "This is the day we bury decades of failure and meaningless struggle," he said. "There is no going back." At the time, Argentina's annual inflation rate was as high as 143%, its trade deficit was $43 billion, and its fiscal deficit was equivalent to 3.5% of the country's GDP. Six months after Milley took office, inflation remained high, but the country had achieved a trade surplus for six consecutive months and a fiscal surplus of 1.1% of GDP.

Milley is trying to turn around Argentina's economic decline. His measures include firing tens of thousands of public sector employees, suspending public works, eliminating energy subsidies, raising taxes and reducing the federal and provincial revenue sharing. These measures have been met with massive opposition, sparking street protests and a sharp reduction in Milley's fiscal austerity measures, which have limited support in Congress. A scaled-back fiscal package narrowly passed the Senate in June and will now go to the House of Representatives for consideration.

Mile’s conservative approach may be the strong medicine the country needs to finally move forward, but the lack of a spoonful of sugar would make the medicine easier to swallow.

Even if Argentina’s fortunes improve, decades of economic mismanagement mean there will be a constant rush to the dollar, both paper and digital. But the government hasn’t done much to protect its citizens.

What are Argentina’s cryptocurrency regulations? More than three months ago, the CNV announced a registration requirement for “all those who use web pages, social networks or other means to send advertisements to individuals residing in Argentina” and receive user funds “through the use of any technology.” There is no deadline for registration. “Unregistered institutions will not be able to operate in the country,” said Robert E Silva, president of the CNV.

The requirement is neither complex nor onerous for registrants. Yet many of the 55 cryptocurrency companies in the Forbes study operate in Argentina, but none registered three months after the rules took effect on March 25. As of June 20, the public registry showed 48 companies listed, most of which are relatively small local operations. Argentine officials did not respond to multiple requests for comment for this story.

Registration is a small step, and it is clearly not enough for the world's 22nd largest economy, with a GDP of $633 billion. Bitcoin and digital currencies were born in the Great Recession that hit the United States in 2008. But it would be no less popular if Bitcoin started in this Andean country, which has long been plagued by inflation and political turmoil.