In recent years, Argentina has been labeled as a country plagued by inflation, much like its famous grilled beef. Over the past 12 months, the country has experienced an accumulated inflation rate of 276%. In fact, one of the typical manifestations of Argentina’s skyrocketing inflation is the changing dietary habits of its residents, who are now opting for cheaper protein sources such as pork and chicken instead of beef. Some observers believe that beef prices in Argentina will increase by 600% this year, and steak is no longer a daily staple for Argentinians.
Despite only recently starting to seek alternatives to beef, the Argentinians have been trying to escape the constantly devaluing peso for decades. In fact, for the past 50 years, Argentinians have been buying US dollars through the black market. The most famous black market operators have even appeared on the main street of Buenos Aires, Florida Avenue.
The black market is a desperate choice for Argentinians, who may get scammed. At these unauthorized and unsafe currency exchange places, Argentinians sometimes exchange pesos for dollars at double the government-approved exchange rate. The current exchange rate of 954 pesos per US dollar is 41% higher than the official rate. And that’s not the only risk. According to one of the country’s two major newspapers, La Nacion, other major risks include customers being robbed by their trading counterparts or receiving counterfeit bills.
But now, a new way to acquire US dollars has emerged: cryptocurrencies. In fact, Argentina has a higher adoption rate of cryptocurrencies (the proportion of cryptocurrency users to the total population) than any other country in the Western Hemisphere. A study conducted by Forbes in collaboration with SimilarWeb, a data analysis company, found that out of the 130 million visitors to the top 55 global exchanges, 2.5 million are from Argentina.
Argentinians are not playing with memecoins or trying to get rich overnight with the next hot token. Instead, they usually buy and hold Tether (USDT), a synthetic dollar with a market value of $112 billion. Maximiliano Hinz, the Latin America head of the cryptocurrency exchange Bitget, said, “Argentina is a unique market, where many people just buy USDT. We haven’t seen this in other places. Argentinians buy spot USDT and then do nothing.”
Although stablecoins like USDT seem to be the perfect solution for Argentina’s inflation woes, they also come with certain risks. The country has yet to establish any regulations to govern this wild industry, and the most trusted exchanges and markets in the world (according to Forbes) are not the most widely chosen options for Argentinians.
Argentina’s newly elected liberal president, Javier Milei, has expressed his willingness to accept dollarization in Argentina. On May 17, he stated at a business conference that the country is moving towards a “competitive currency system,” where everyone can choose which currency to use for payments and transactions. He expects this to lead Argentina to “use the peso less and less, and when almost stopping using the peso, we will move towards dollarization and eliminate the central bank, so that corrupt politicians cannot steal wealth by printing money.”
Stablecoins tied to the US dollar align with the idea of dollarization, but buyers must find a secure way to purchase, hold, and use them. Argentina does not provide reliable safeguards for cryptocurrency users.
Argentina has a higher adoption rate of cryptocurrencies than any other country in the Western Hemisphere. According to Forbes’ research on SimilarWeb data, out of the 130 million visitors to the top 55 global exchanges, 2.5 million are from Argentina. Additionally, cryptocurrency data analytics firm Chainalysis stated in a report at the end of last year that Argentina “leads Latin America in terms of raw transaction volume, estimated at $85.4 billion by July 2023.”
However, the stablecoin of choice in Argentina, USDT, has a complicated history. Tether, based in the British Virgin Islands, has been cautious about revealing its internal operations, never undergoing an audit or disclosing which banks it uses. In 2021, the CFTC and the New York Attorney General forced Tether to pay fines of $41 million and $18.5 million, respectively, for falsely claiming that USDT is fully backed by US dollars. In a country still plagued by triple-digit inflation, these warning signs seem to have not garnered enough attention from users.
The risks don’t end there, they also include the exchanges and markets that serve Argentina. Forbes’ selection of the 20 most trusted cryptocurrency exchanges in May did not include the top five cryptocurrency providers in Argentina – Binance, eToro, Binance, HTX, and Bitget – due to a lack of domestic regulatory oversight. Binance is the most visited exchange website, with traffic from Argentina surpassing any other country. However, Binance is not regulated by any national regulatory authority, let alone a local one.
Doing business with Binance can be risky. We know that Binance has previously admitted to violating US anti-money laundering regulations, resulting in a $4.3 billion fine and long-term monitoring by US regulatory agencies to prevent such incidents from happening again.
But that’s not all. Forbes’ previous investigation into Binance also revealed that customers’ online account balances are unreliable because the tokens they hold ultimately derive their value from the company’s internal ledgers, which are not open to the public. The company has moved funds off exchanges as collateral for issuing stablecoins. However, the advantage for Binance is that it has not gone bankrupt and is able to process customer withdrawals and continue operating normally.
It is difficult for ordinary Argentinians or other novice investors to understand and realize these risks. Fernando Apud, a software engineer living in the northern province of Tucuman, recently evaluated local companies such as Cocos Capital and larger, more complex websites like Binance. While these websites claim security and convenience as their main selling points, he found that even large websites like Binance are reluctant to disclose basic information, such as whether they are registered and operating in Argentina and the actual owners of the company.
When Forbes asked Rose Zimler, from Binance’s Spanish-speaking communications team, about Binance’s situation in Argentina, she stated that the company “maintains close contact with the authorities” but is not registered in Argentina. She did not explain why they are not registered or if they intend to register. She mentioned that Binance has 18 licenses worldwide.
Binance is not an isolated case. Other top cryptocurrency exchanges in Argentina are also not registered with the country’s securities regulator, the National Securities Commission (CNV). They often tell Forbes that they are trusted by customers because they have a good operating history. Pablo Monti, brand ambassador for BingX, representing the communication team of the exchange, declined to disclose the platform’s regulatory compliance in Latin America but told Forbes on May 20, “As we celebrate our 6th anniversary, BingX is expanding further into Argentina and other countries like Turkey and Vietnam.” A spokesperson for eToro did not address the issue of being unregistered, but mentioned, “As a company regulated by financial authorities in multiple jurisdictions around the world, eToro is committed to complying with applicable rules and regulations in the jurisdictions where we operate.” Bitget, a cryptocurrency exchange endorsed by the world-famous Argentine football star Lionel Messi, stated, “To my knowledge, there are no licensing requirements for Bitget-operated Latin American countries.” Finally, the exchange HTX, associated with Justin Sun, did not respond to email inquiries about its operations in Argentina.
In addition to cryptocurrency exchanges, Argentinians can also utilize domestic companies that use cryptocurrencies. These companies allow users to purchase and spend cryptocurrencies with prepaid cards, such as Lemon and Buenbit. However, these companies also have regulatory loopholes. In the latest Chainalysis Latin America report, Alfonso Martel Seward, compliance director of Lemon Cash, stated that his company has around 2 million Argentinian users, while the total number of cryptocurrency users in the country is approximately 5 million.
Argentinians have had enough of the peso. Since the country ended the one-to-one peg of the peso to the US dollar in January 2002, the devaluation of the peso has caused significant trouble for them. After the peg was broken ten years later, the exchange rate of the peso to the dollar dropped to around 4 pesos per dollar, and with the onset of the Covid-19 pandemic in early 2020, the rate plummeted to 64 pesos per dollar.
According to Bloomberg data, although the devaluation of the peso facilitated the country’s foreign trade in the early 2000s, this benefit gradually disappeared after 2009. Over the past 10 years, the inflation-adjusted GDP has declined by an average of 0.1% per year, with only four years of growth.
Why has Argentina fallen into this predicament? 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 Niña phenomenon) have had a significant impact on grain exports (the country’s primary hard currency source) last year and this year. Argentina experienced the most severe drought in the past 60 years. “It has never happened before that all three crops, soy, corn, and wheat, have failed,” said Julio Calzada, the economic research director of the country’s main agricultural exchange. “We are all waiting for rain.” Crop failures mean reduced dollar income, which in turn drives up food prices and increases default risks and interest rates. In his inaugural speech on December 10, 2023, Milei stated his intention to end past practices. “On this day, we bury decades of failure and meaningless struggles,” he said. “There is no turning back.” At that time, Argentina’s annualized inflation rate was as high as 143%, the trade deficit was $43 billion, and the fiscal deficit was equivalent to 3.5% of the country’s GDP. Six months into Milei’s presidency, inflation rates remain high, but the country has achieved six consecutive months of trade surplus and a fiscal surplus equivalent to 1.1% of GDP.
Milei is working hard to turn around Argentina’s economic decline. His measures include laying off tens of thousands of public sector employees, suspending public works, eliminating energy subsidies, increasing taxes, and reducing revenue sharing between the federal government and the provinces. These measures have faced massive opposition, leading to street protests, and Milei’s fiscal austerity measures have been significantly scaled back with limited support in Congress. In June, a watered-down version of the fiscal measures passed the Senate by a narrow margin and will now be submitted to the House of Representatives for review.
Milei’s conservative strategy may be the strong medicine that this country needs to move forward, but lacking a spoonful of sugar can make it harder to swallow.
Even if Argentina’s fate improves, the decades of mismanagement in its economy mean that people will continue to flock to the US dollar, whether in paper or digital form. Yet, the government has taken limited measures to protect its citizens.
What cryptocurrency regulations does Argentina have? Three months ago, the CNV announced a registration requirement that “anyone who sends advertisements to individuals residing in Argentina through websites, social networks, or other means” and “receives funds from users through the use of any technology” must register. There is no deadline for registration. CNV President Robert E Silva stated, “Unregistered entities will not be able to operate in the country.”
This requirement is neither complex nor burdensome for those registering. However, out of the 55 cryptocurrency companies in Forbes’ research that operate in Argentina, none of them registered within three months of the rule taking effect on March 25. As of June 20, the public register shows that 48 companies are listed, and most of them are relatively small local operators. Argentine officials did not respond to multiple requests for comment on this matter.
Registration is just a small step for the world’s 22nd largest economy with a GDP of $633 billion. Bitcoin and cryptocurrencies were born out of the 2008 Great Recession in the United States. But if Bitcoin were to start from this long-term inflation and political turmoil in the Andean country, it would also be a popular choice.
