The State of Crypto Adoption in Argentina
Source: Envato
Argentina has emerged as a leader in crypto adoption in the Western Hemisphere, driven primarily by the country’s struggle with hyperinflation and currency devaluation.
With the peso’s inflation rate reaching a staggering 276% annually, many Argentinians have turned to cryptocurrencies, particularly stablecoins like Tether (USDT), as a hedge against the rapidly diminishing value of their national currency.
This trend is evidenced by data from Forbes, which shows that out of 130 million visitors to major crypto exchanges globally, 2.5 million were from Argentina. This high adoption rate is further underscored by Argentina’s position as the top market for Binance in terms of website traffic.
Interestingly, unlike many other markets where speculative trading or interest in meme coins drives adoption, Argentinians are primarily using crypto, especially stablecoins, as a store of value. Many users simply buy USDT and hold it, viewing it as a more stable alternative to the peso.
Argentina is an anomalous market where many people buy USDT and don’t leave room for much else, We don’t see this elsewhere. Argentines buy spot Tether and don’t do anything with it.
The government’s stance on cryptocurrencies has been relatively open, with President Javier Milei endorsing the use of Bitcoin in legally binding contracts. However, the rules and regulations are still not fully developed.
While the country has introduced registration requirements for crypto firms, major exchanges operating in Argentina have yet to register with the national securities regulator (CNV). This creates a complex situation where crypto adoption is high, but the infrastructure for regulated services lags.
Despite these challenges, it’s estimated that over 2.5 million people, representing about 5.6% of Argentina’s population, own cryptocurrency.
This high adoption rate reflects the urgent need for financial alternatives in a country where traditional economic systems have repeatedly failed to provide stability.
Crypto Law In Argentina
Source: Envato
Until March 2024, Argentina lacked a comprehensive legal framework for cryptocurrencies, with the National Securities Commission (CNV) taking a relatively lenient stance.
This changed dramatically with the passage of Law N°27,739 on March 15, 2024, which introduced substantial reforms aimed at preventing money laundering and terrorist financing.
Source: Twitter
The new law created a category for Virtual Asset Service Providers (VASPs) and mandated them to monitor and report anti-money laundering activities.
It also appointed the CNV as the regulatory authority for the crypto industry, tasking it with establishing a comprehensive regulatory framework. Shortly after, on March 22, the CNV issued General Resolution N°994, instituting a mandatory registry for VASPs.
This resolution set clear conditions for registration, including operations using “.ar” domains, commercial agreements allowing local receipt of funds from Argentine residents, advertising targeting Argentine residents, or generating significant turnover in Argentina from VASP activities.
We have worked against the clock to advance in compliance with Law No. 25,246, which reforms the National Regulatory System for the Prevention of Money Laundering and Financing of Terrorism (ML/FT), and to present today the creation of the PSAV registry before the end of the FATF visit to the country and taking into account its recommendation on the subject.
While the registration process is relatively straightforward, it prohibits entities based in non-cooperative or high-risk jurisdictions from registering. Also, the new framework emphasizes user protection, information security, operational safety, and anti-money laundering practices.
It’s worth noting that while cryptocurrencies are not considered legal tender in Argentina – as the Constitution grants the Central Bank sole authority to issue legal currency – they are recognized as a form of money.
The government has also addressed cryptocurrencies in its tax code, with the 2017 amendments to the Income Tax Law stipulating that profits from digital currency sales are subject to taxation.
Economic Situation in Argentina
Source: Envato
In the first five months of 2024, the government achieved a primary fiscal surplus of 1.1% of GDP, a feat not seen since 2008.
This fiscal consolidation has led to reduced monetary issuance and a deceleration of inflation. The government is now focused on sustaining this fiscal surplus and dismantling FX-market restrictions to foster sustainable growth.
Despite these positive steps, the economy experienced a deepened recession in Q1 2024 due to measures aimed at addressing macroeconomic imbalances.
A 4% GDP contraction is projected for 2024, followed by an expected 6% rebound in 2025. Inflation, while still high, has decelerated faster than anticipated, with estimates revised to 140% for 2024 and 45% for 2025.
The country has embraced crypto at a grassroots level, with over a third of the population using it for everyday transactions.
The newly elected government, under President Javier Milei, has shown interest in crypto’s potential, this includes approving the tokenization of certificates, enabling the creation of LLCs using crypto, and considering lifting previous bans on crypto services..
The Crecimiento movement, uniting crypto believers, entrepreneurs, and innovators, is at the forefront of this transformation.
Through initiatives like Aleph, a month-long pop-up city in Buenos Aires, the movement is fostering innovation and accelerating the development of crypto-based solutions to Argentina’s economic challenges. These range from bringing housing rentals on-chain to creating new yield-bearing stablecoins.
While it’s too early to definitively state that crypto has “solved” Argentina’s economic problems, it’s clear that cryptocurrency is playing an increasingly significant role in the country’s economic landscape.
Use Cases of Cryptocurrency in Argentina
Source: Envato
Primarily, Argentines view cryptocurrencies as a long-term investment and inflation hedge, with over 50% of crypto buyers using digital assets to protect their wealth from the peso’s rapid devaluation.
This store-of-value function is crucial in a country where annual inflation rates have skyrocketed to 94.8% in 2022, eroding confidence in the national currency.
Beyond wealth preservation, cryptocurrencies serve practical purposes in everyday life. They’re increasingly used for remittances, offering migrant workers a more efficient and cost-effective way to send money home, especially with the introduction of the Bitcoin Lightning Network.
Argentina is trending in the use of cryptocurrencies due to several economic and social factors. The persistent inflation and devaluation of the Argentine peso have led citizens to find ways to preserve their capital, finding cryptocurrencies an appealing alternative
In daily transactions, more businesses and even local governments are accepting crypto payments, while crypto-linked debit and credit cards are gaining popularity, facilitating easier spending of digital assets.
The decentralized finance (DeFi) sector is also gaining traction, with nearly 25% of crypto transactions in Argentina occurring on DeFi platforms. This indicates a growing interest in advanced financial services like decentralized exchanges, staking, and crypto-backed loans.
Lastly, the use of in Argentina is partly driven by a desire for financial autonomy. The memory of the 2001 “Corralito” crisis, where bank accounts were frozen, has led many to seek financial options beyond cryptocurrencies traditional banking systems.
This distrust in centralized financial institutions has made the decentralized nature of cryptocurrencies particularly appealing, with 46% of Argentines citing avoidance of government controls as a reason for buying crypto.
Government Regulations and Policies
Source: Envato
Initially, Argentina was relatively crypto-friendly, with early adoption of Bitcoin for small purchases and public transportation payments as far back as 2014. However, the regulatory landscape has since become more restrictive.
In recent years, the Argentine government and central bank (BCRA) have taken steps to discourage cryptocurrency usage.
This shift is partly driven by concerns about financial stability, money laundering, and the potential for crypto to exacerbate economic challenges such as inflation and capital flight.
The BCRA’s 2022 statement restricting banks from offering crypto services exemplifies this tightening regulatory stance, aimed at mitigating perceived risks to customers and the broader financial system.
Despite these restrictions, the government has also taken steps to bring the crypto sector under regulatory oversight.
The National Securities Commission (CNV) established a registry for virtual asset service providers (VASPs) in compliance with FATF recommendations and domestic anti-money laundering laws. This move aims to enhance transparency and regulatory control over crypto-related activities within the country.
The regulatory environment for cryptocurrencies in Argentina remains challenging, with issues such as imprecise tax regulations and operational difficulties for crypto exchanges when dealing with traditional banks.
The government’s approach appears to balance concerns about financial risks and international obligations with the reality of growing crypto adoption among citizens seeking to protect their savings from high inflation and currency restrictions.
Challenges to Crypto Adoption
Source: Envato
Cryptocurrency adoption in Argentina has been growing rapidly, driven by economic instability and the need for alternative financial solutions. However, several challenges hinder its widespread adoption. Here are the key challenges discussed extensively:
Economic Instability
While economic instability has driven many Argentinians to adopt cryptocurrencies as a hedge against inflation and currency depreciation, it also poses a challenge.
The volatile economic environment makes it difficult for people to invest in and use cryptocurrencies consistently.
Additionally, the fluctuating value of the Argentine peso can affect the purchasing power of crypto assets, making them less reliable as a store of value.
Although adoption and the number of crypto offerings are growing in the country, the Argentine regulatory context is far from ideal. In addition to “imprecise tax regulation”, there are constant inconveniences that crypto-asset exchanges have to overcome when operating with traditional banks.
Cybersecurity Concerns
Cybersecurity is a major concern for crypto users in Argentina. The country has experienced several high-profile cyberattacks and scams targeting crypto exchanges and individual users.
These incidents undermine trust in the security of cryptocurrencies and deter potential users from entering the market.
Government Intervention
The Argentine government has implemented strict currency controls and financial regulations to stabilize the economy.
These measures can restrict the use of cryptocurrencies and limit their potential benefits.
For example, the government may impose taxes on crypto transactions or limit the amount of foreign currency that can be exchanged for cryptocurrencies.
Potential Benefits of Crypto Adoption
Source: Envato
Cryptocurrency adoption in Argentina offers several potential benefits, especially given the country’s economic challenges. Here are the key benefits discussed extensively:
Hedge Against Inflation
Argentina has faced high inflation rates for many years, eroding the value of the national currency, the Argentine peso.
Cryptocurrencies, particularly Bitcoin, are often seen as a hedge against inflation because of their limited supply and decentralized nature.
By adopting cryptocurrencies, Argentinians can protect their savings from the devaluation of the peso and maintain their purchasing power.
Remittances
Argentina receives a substantial amount of remittances from its diaspora. Traditional remittance services can be expensive and slow, with high fees and long processing times.
Cryptocurrencies offer a faster and cheaper alternative for sending and receiving money across borders. This can significantly reduce the cost of remittances and ensure that more money reaches the intended recipients.
Reduced Dependence on the US Dollar
Due to the instability of the peso, many Argentinians rely on the US dollar for savings and transactions. This dependence on a foreign currency can be problematic, especially during times of economic crisis. Cryptocurrencies offer an alternative that is not tied to any single country’s economy, providing a more stable and independent financial option.
Conclusion
The number of users in the Cryptocurrencies market is projected to reach 11.01m users by 2025, this simply means that Argentina is on the verge of becoming a global cryptocurrency hub.
The country’s unique economic circumstances, coupled with its early adoption of cryptocurrencies, have positioned it as a leader in the Latin American crypto market.
Despite regulatory challenges and economic instability, Argentina’s crypto adoption rate continues to grow, driven by the desire for financial alternatives and the potential benefits of digital assets.
As the country deals with its economic challenges, cryptocurrencies are likely to continue playing an important role in offering financial empowerment and economic stability. They may even become a model for other countries facing similar issues.
