Consistently high inflation rates and stringent currency control policies created a perfect storm for the uptake of the digital currency bitcoin in Argentina, with major publications heralding its widespread adoption. But some of the key factors that led to its rise in the country are beginning to shift, leading some to wonder if the currency will continue to gain momentum there.
For eight years, the interventionist policies of former President Cristina Fernandez de Kirchner led to a large divide between the official, government-set exchange rate for the dollar, and the black market rate. At a recent height in August 2015, for example, exchanging a $20 US dollar bill in a bank would get you 185 pesos, whereas selling it on the street would get you 316 pesos. The administration's policies also made it very difficult to transfer money overseas or import goods and purchase from companies outside the country.
These policies were the latest in a long history of government attempts to offset currency volatility and economic instability in Argentina, which has undergone a series of financial meltdowns in the last century. Inflation once hit a record 5,000 percent in 1989, for example, during the presidency of Raul Alfonsin after the end of the country's dictatorship. Starting in 1991, the following administration artificially pegged the peso to dollar to help fight inflation and promote economic growth, a policy that collapsed in 2001 in the biggest debt default in world history.
These past events have made Argentinians wary of the peso, and many have sought to keep their investments safe from inflation by trading for more stable currencies, but to do so in recent years they had to go underground. Black market exchange centers called cuevas (caves) were tucked in the travel agencies and antique stores of Buenos Aires, and flourished on Calle Florida, a street in the main stretch of Buenos Aires, where dozens of black market exchangers shouted out "cambio" to passersby seeking to buy dollars at the unofficial rate. In this context, bitcoin became an appealing and convenient alternative for storing investments or sending money abroad because it requires simply logging onto an exchange, not taking to the streets.
But new president Mauricio Macri lifted currency controls after taking office in December, shuttering many of these clandestine exchange spots. Now the black market dollar (called dólar blue) is all but dead; citizens can purchase dollars freely at the bank and send money abroad more easily than before. With major functions of bitcoin in the country now eliminated, can the cryptocurrency still thrive?
For tech entrepreneur Joan Cwaik, the answer is yes. He says Argentina still has the most robust bitcoin community in Latin America, a thriving crypto startup scene, and steady increase of everyday users. According to figures produced by the group Bitcoin Argentina, there are currently between 8,000 and 20,000 bitcoin users in the country trading $70,000-$80,000 US dollars each day. Argentininan bitcoin exchange Bitex.la handles $1.5 million USD per month and covers approximately 3 percent of all bitcoin transactions in Latin America, according to Cwaik.
Cwaik estimates the bitcoin community in Argentina has grown between 20 and 30 percent in the country in the past year, due to growth in related startups, more businesses accepting bitcoin, the government warming up to the technology, and increased coverage of bitcoin in the media.
Four months into Macri's term as president, it may be too soon to say whether elimination of currency controls will diminish the user base at all, but Cwaik said for now it is not affecting adoption.
"We have a unified dollar now, not a parallel market anymore, and that is good news for bitcoin," he said in Spanish. "Although theoretically it was thought that these economic policies to stabilize the country were going to slow down the adoption of bitcoin, this did not happen in practice."
Thus far, Macri has proven to be much more bitcoin-friendly than the past president
Of course, getting around currency controls and navigating economic instability is not the only draw to the bitcoin, or else we wouldn't see such widespread adoption of it globally. Just like in San Francisco or London, many bitcoin users in Argentina have adopted the currency because they are interested in privacy practices, fascinated by blockchain technology, have libertarian-leaning ideologies, or just want to try something new.
Data from exchanges shows the demand for bitcoin and the independent sale of bitcoin are continuing to grow at the same rate as it was before, he said, and the same volume of bitcoin is being exchanged each day.
Franco Amati, co-founder and director at Espacio Bitcoin, a coworking space and meeting place for Bitcoin startups in Buenos Aires, said the removal of price controls has had one concrete effect: on the local price of bitcoin. Previously, with many users in Buenos Aires receiving money from abroad in bitcoin to avoid capital controls, and later selling those bitcoins, the local price of bitcoin was 5 percent lower than the rest of the world. Now the value of bitcoin is 2 percent higher in Argentina than most popular foreign exchanges, he said.
"Most people thought it would be the other way around, but on the contrary," he said. "Before many people used bitcoin to bring money into Argentina and to exchange their salaries without losing 30 percent, so the market here always had too much bitcoin."
Amati said that has been the biggest concrete change in the four months since Macri took office, but other changes have been more subtle, marked by a sense of general ease in the bitcoin and startup environment. Although many believed Macri's currency policies would negatively affect bitcoin adoption, his presidency actually brought a sigh of relief from bitcoin users who felt Fernandez de Kirchner was not friendly to the currency, if not outright hostile towards its use. In May of last year the country's central bank released a statement "alerting the public to the risks of using" bitcoin.
"So-called virtual currencies have shown great volatility so far and have experienced swift and substantial price changes," the statement said in Spanish. The administration also had a less-than-enthusiastic response from its official Twitter account to a New York Times story about Bitcoin sweeping Argentina: "Apparently bitcoin is disrupting our economy now (?)," it tweeted.
Thus far, Macri has proven to be much more bitcoin-friendly than the past president. In July 2015, as the governor of Buenos Aires, he hosted the first bitcoin forum of the city at an official government building, and in January he posted on his Facebook page that he had met with Richard Branson and discussed the use of the cryptocurrency.
"We were always afraid the government would do something, but with the current government, that fear has disappeared," Amati said. "They are much more relaxed on this topic, and it gave us a more positive perspective that nothing bad was going to happen and they weren't going to persecute us or come for us."
Argentina has more than 100 local businesses that accept bitcoin, according to Coinmap and a growing interest in the cryptocurrency that Cwaik expects will keep growing in 2016, though perhaps at a slower clip.
"I can confirm, in my opinion, that in 2016 the bitcoin community will grow by about 15 percent in the country," he said by email. "The technology is reserved for a niche in society still, and there are many people who don't know it. The recent economic regulation the country is taking on, coupled with the normalized exchange and access to foreign currency will decrease somewhat the desperate search to access USD."
As Argentina seeks to stabilize the peso and normalize the country's economy, bitcoin offers an allure that doesn't seem to be fading any time soon.