Bitcoin blasts past its 2021 all-time high in Argentina, but hyperinflation outpaces gains
Will Bitcoin Be a Viable Option for Argentina in the Face of Hyperinflation?
Argentina has been plagued by hyperinflation for decades, primarily due to failed policies that have resulted in budget deficits. With the constant threat of a full-scale currency collapse looming over the country, many are considering the prospects of increased adoption of Bitcoin (BTC) as a potential solution. This article will explore Bitcoin’s track record when priced in the local Argentine peso currency and its viability as a store of value for investors in Argentina.
Throughout its history, the Argentine government has resorted to inflating the money supply through bank deposits or government bonds. Over the past three years, the country’s aggregate money supply M1 has surged from 2.81 trillion pesos in July 2019 to a staggering 10.66 trillion pesos, marking a 277% increase. This excessive inflationary measure has devalued the Argentine peso and eroded the purchasing power of its citizens.
In terms of Bitcoin’s price in Argentine pesos, it has experienced significant growth on domestic exchanges. Bitcoin’s price on these exchanges has soared to 19.6 million Argentine pesos, up from 14.2 million when BTC reached its all-time high in USD in November 2021. This means that despite the 61.5% drop in USD, investors in Argentina have still managed to accrue gains of 38% when measured in the local currency.
However, there is a discrepancy when consulting Google or CoinMarketCap for Bitcoin’s price in pesos. The answer lies in the official currency rate for the Argentine peso, which is more complex than most investors are accustomed to. The official rate, known as the “dollar BNA,” is set by Argentina’s central bank and is used for all government transactions, as well as imports and exports.
When the Bitcoin price in Argentine pesos is calculated based on the BTC price on North American exchanges in USD, multiplied by the official Argentine peso rate provided by the local government, it is nearly double compared to what is traded on cryptocurrency exchanges. This phenomenon is not unique to cryptocurrencies, as it also affects other highly liquid international assets such as stocks, gold, and oil futures.
By artificially strengthening the official rate in favor of the Argentine peso, the government aims to stabilize the economy, reduce capital flight, and curb speculative trading by making it more expensive to purchase foreign currency and store wealth in USD. However, this manipulation of the official exchange rate ultimately contributes to inflation and impedes economic growth. It creates incentives for the existence of an unofficial and unregistered market known as the “dollar blue,” fostering illegal activities and undermining financial transparency.
Considering Bitcoin as a reliable store of value for investors in Argentina, the numbers tell a different story. According to Bitso exchange prices in Argentine pesos, Bitcoin has gained 150% over the two years ending September 2023, moving from 7.84 million pesos to 16.6 million pesos. However, the accumulated official inflation rate during this period has exceeded 300%, rendering the claim that Bitcoin has been a dependable store of value incorrect.
In contrast, those who opted for U.S. dollars, whether in traditional form or stablecoins, have seen their holdings increase by 297% during the same period, effectively matching the inflation rate. This suggests that stablecoins may be a more favorable option than Bitcoin for investors in the region.
Despite this disappointing outcome for Bitcoin proponents, there is a silver lining. Investors have had the opportunity to learn about the advantages of self-custody and scarcity, given that the local currency has been continuously devalued by its inflating supply. These are valuable lessons that can be applied to investment strategies in the future.
Ultimately, for Argentinians, as long as the U.S. dollar maintains its purchasing power by keeping pace with local inflation, there is little room for Bitcoin to become the preferred store of value. However, the situation remains fluid, and it is crucial to closely monitor the economic conditions in Argentina to determine whether Bitcoin or other alternative assets could present new opportunities in the future.
