Cryptos and USD Go Head-to-Head

Argentineans have a lot of trust in the US dollar, maybe even more than their own currency.

It likely stems from the fact that Argentina has had quite a history with inflation and hyperinflation. It’s not easy to protect your wealth when something like this hits you. But one of the ways to do that is to buy foreign currency.

Any time there is even a whiff of inflation, Argentineans will flock to the US dollar to preserve value. But of course, this turns into a vicious cycle because the more US dollars people buy, the more the peso devalues.

Point is, people will look for an alternative store of value when they see their money erode.

While the official currency is the Argentinean peso, Argentineans have historically used the US dollar for plenty, saving in US dollars, buying property — you name it. And for the Argentinean economy, it’s crucial to have enough reserves in USD to pay off debt.

You would think it would be quite easy then to buy US dollars…

But if you’ve ever tried to, you know that just trying to figure out what the actual price you’ll get for buying US dollars is can make you dizzy.

That’s because there isn’t only one exchange rate for the peso against the US dollar, there are lots.

There’s the ‘official’ dollar exchange, but you’ll be hard pressed to get that exchange rate anywhere.

Then there’s the dollar blue, which is basically the one you can get in the black market. It’s illegal but you’ll still see it published in most of the country’s major newspapers.

The exchange rate for the blue is usually higher than the official and in a way, it acts as a measure of the confidence in the Argentinean peso. The bigger the gap the lower the confidence.

Confidence is one of those things that influences currencies, along with interest rates.

But that’s not where it ends.

There’s the dollar tourist exchange rate…dollar soy…dollar wholesaler…dollar beef…dollar services…dollar importer…dollar Netflix (for digital transactions)…and the list goes on and on.

You still with me? I know, it’s confusing.

The exchange rate will depend on what you are using the dollars for.

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Bitcoin’s price is increasing with adoption…

Now for a little while, there’s been a new dollar exchange rate popping up: crypto dollar, also known as bitcoin dollar.

That is the value of the dollar when buying cryptos. Yep, from what I hear from friends over there cryptos are in vogue.

Here’s CoinDesk:

At the start of 2020, Ripio, one of Argentina’s largest crypto exchanges, had around 400,000 users. It’s finishing the year with 1 million. 

Ripio’s chief brand officer, Juan Mendez, told CoinDesk that around 70% of Ripio users are from Argentina, with the remainder mostly concentrated in Brazil. According to Mendez, the platform also saw a tenfold increase in trading volume this year compared to last. 

Along with Ripio, crypto exchanges operating in Argentina saw record growth in 2020, with some experiencing all-time highs in trading volumes towards the latter half of the year.

“Argentinians are always trying to find a stronger currency,” Mendez said.

It’s exciting. I’ve been waiting for quite some time to see crypto adoption in Argentina.

The country is quite ripe for it. They don’t only have problems with inflation but there’s also restrictions on buying US dollars.

From what I’ve seen, much of the interest so far is in stablecoins, which are usually backed by another asset, like the US dollar. Stablecoins aren’t as volatile as bitcoin and they allow exposure to the US dollar without restrictions.

But from what I hear, bitcoin too is grabbing people’s attention after the massive gains it saw last year. Bitcoin has seen a massive run in the last few months, mainly because of more investors going in.

Tesla bought US$1.5 billion in bitcoin and will accept it as payment. And recently, Visa partnered with BlockFi to launch a credit card that offers 1.5% cash back in bitcoin.

More adoption is increasing trust in cryptos at the time that confidence is eroding for the US dollar, with central banks debasing their currencies, which is bringing along fears of inflation rising.

Bitcoin’s price is increasing with adoption. But maybe too, it’s the US dollar that’s decreasing in value against bitcoin as it loses confidence.

Best,

Selva Freigedo Signature

Selva Freigedo,
For The Rum Rebellion


Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.


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