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In recent years, Argentina has been labeled with inflation, much like its famous grilled beef. In the past 12 months, the country’s accumulated inflation rate reached 276%. In fact, one typical manifestation of Argentina’s soaring inflation rate is a change in residents’ dietary habits. Their demand for beef has declined, and they are turning to cheaper sources of protein such as pork and chicken. Some observers believe that beef prices in Argentina will rise by 600% this year, and steak is no longer a daily staple for Argentinians.
Despite the fact that Argentinians are just starting to seek alternatives to beef, they 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 even appear on the main street of Buenos Aires, Florida Avenue.
The black market is a reluctant choice for Argentinians, who may be deceived. In these unauthorized and unsafe currency exchange places, sometimes Argentinians would exchange pesos for dollars at twice the government’s official exchange rate. The current exchange rate of 954 pesos to 1 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 Nación, other major risks include customers being robbed by counterparties or receiving counterfeit money.
But now, a new way of obtaining dollars has emerged: cryptocurrencies. In fact, Argentina has a higher adoption rate of cryptocurrencies (the percentage of cryptocurrency users in the total population) than any other country in the Western Hemisphere. A study by Forbes in collaboration with SimilarWeb, a data analysis company, found that out of the 130 million visitors to the top 55 exchanges worldwide, 2.5 million came from Argentina.
Argentinians are not playing with Memecoins or trying to get rich overnight with the next hot token. Instead, they typically buy and hold Tether (USDT), a synthetic dollar with a market capitalization of $112 billion. Maximiliano Hinz, the Latin America head of the cryptocurrency exchange Bitget, said, “Argentina is a peculiar market, where many people just buy USDT. We don’t see this in other places. Argentinians buy spot USDT and then do nothing.”
Although stablecoins like USDT seem to be a perfect solution for Argentina’s inflation problem, 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’ selection) are not the most popular choices for Argentinians.
Argentina’s new liberal president, Javier Milé, 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 payment and transactions. He expects this to lead to Argentina using pesos less and less, and when it almost stops using pesos, the country will move towards dollarization and abolish the central bank so that corrupt politicians cannot steal wealth by printing money.
Stablecoins pegged 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 protection 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 exchanges worldwide, 2.5 million come from Argentina. Additionally, cryptocurrency analytics company Chainalysis noted in a report at the end of last year that Argentina “leads Latin America in 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, keeps its internal operations secretive and has never undergone an audit or disclosed 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 was fully backed by US dollars. These warning signs seem to have not received enough attention from users in a country still plagued by triple-digit inflation.
The risks do not stop there and include exchanges and markets that provide services to Argentina. Forbes’ selection of the top 20 most trusted cryptocurrency exchanges in May did not include the top five cryptocurrency providers in Argentina—Binance, eToro, BingX, 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 agency, let alone a local one.
Doing business with Binance is 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, what favors Binance is that it has not gone bankrupt and is able to process customer withdrawals and continue operating as normal.
It is difficult for ordinary Argentinians or other novice investors to understand and recognize these risks. Fernando Apud, a software engineer living in the northern province of Tucumán, recently assessed 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 discovered that even large websites like Binance are unwilling 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, the Spanish-language communications team of Binance, about the situation of Binance in Argentina, she stated that the company is “in close contact with the authorities” but is not registered in Argentina. She did not explain why there is no registration or whether there is an intention to register. She stated that Binance has 18 licenses globally.
Binance is not an exception. Other top cryptocurrency exchanges in Argentina are also not registered with the National Securities Commission (CNV), the national regulatory agency for securities. They often tell Forbes that they are trustworthy because they have a good operating history. Pablo Monti, Brand Ambassador for BingX, representing the exchange’s communications team, refused to disclose the regulatory compliance nature of the platform in Latin America but told Forbes on May 20, “As we celebrate our 6th year of operation, 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 stated, “As a company regulated by financial authorities in multiple jurisdictions worldwide, eToro is committed to complying with applicable rules and regulations in the jurisdictions where we operate.” Bitget, a cryptocurrency exchange, has the world-famous Argentine football star Lionel Messi as its brand ambassador. Maximiliano Hinz of Bitget said, “To my knowledge, there are no licensing requirements for Bitget’s operations in Latin American countries.”
In addition to cryptocurrency exchanges, Argentinians can also use domestic companies that facilitate the use of cryptocurrencies. 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, 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 peg of the peso to the US dollar in January 2002, the devaluation of the peso has caused considerable trouble for them. After the peg was broken ten years later, the exchange rate for the peso to the dollar dropped to around 4 pesos, and with the onset of the Covid-19 pandemic in early 2020, the exchange rate fell to 64 pesos to 1 dollar.
According to Bloomberg data, although the devaluation of the peso facilitated the country’s foreign trade in the early 21st century, 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 growth occurring only in four years.
Why did Argentina end up in this predicament? In addition to having an oversized public sector with 3.5 million employees and a lack of commitment to fiscal austerity, external factors such as weather patterns (the La Niña phenomenon) have had a significant impact on last year’s and this year’s grain exports (the country’s main hard currency source). Argentina experienced the worst drought in the past 60 years. “It has never happened before that all three crops, soybeans, corn, and wheat, have failed,” said Julio Calzada, the head of economic research at the country’s main agricultural exchange. “We’re 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, Milé explicitly stated that he plans to end past practices. “On this day, we bury decades of failure and meaningless struggles,” he said. “There is no turning back.” At the time, Argentina had an annualized inflation rate of 143%, a trade deficit of $43 billion, and a fiscal deficit equivalent to 3.5% of its GDP. Six months into Milé’s presidency, the inflation rate remains high, but the country has achieved a trade surplus for six consecutive months, and the fiscal surplus accounts for 1.1% of the GDP.
Milé is working hard to reverse Argentina’s economic slump. His measures include laying off tens of thousands of public sector employees, suspending public works, eliminating energy subsidies, increasing taxes, and reducing the revenue sharing between the federal government and the provinces. These measures have faced massive opposition, leading to street protests, and Milé’s fiscal austerity measures have been significantly scaled back with limited support in Congress. In June, a reduced version of the fiscal measures passed the Senate by a slim margin and will now be submitted for consideration by the Chamber of Deputies.
Milé’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 fortunes improve, decades of poor economic management mean that people will continue to flock to the dollar, whether in paper or digital form. But the government has not taken many 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 institutions will not be able to operate in the country.”
The registration requirement is not complex or burdensome for registrants. However, many of the companies among the 55 cryptocurrency companies in Forbes’ research operate in Argentina but have not registered three months after the rules came into effect on March 25. As of June 20, the public registry shows 48 companies listed, with most of them being relatively small local operations. Argentine officials did not respond to multiple requests for comment on the matter.
Registration is just a small step and clearly not enough 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-plagued Andean country, it would also be highly anticipated.
