Argentina has elected a new president, Javier Milei, in a major shift toward libertarianism, and a hope for new economic prosperity. The election has sparked overwhelmingly positive sentiment from the Bitcoin and crypto community, touting Milei as the second vocally pro-Bitcoin leader to be elected in the world, behind El Salvador’s President Nayib Bukele.
Once, an economic superpower in the late 1800s to early 1900s, Argentina now stands at a crossroads between complete economic collapse and a resurgence of prosperity and stability. The hope of the Argentinian people is that Javier Milei can be the turning point for the country, steering it away from being yet another demonstration of how socialist policies, big government, and central banking can destroy societies.
Overview of Argentina's Current Economic Situation
From the 1860s through the 1920s, Argentina was known on a global scale for having a flourishing economy, often referred to as the United States of South America. However, since the 1930s, Argentina was never able to create a sustained recovery back to a globally recognized position. It’s economic history is one of high potential, constantly hindered by irresponsible fiscal and monetary policies, capital controls, and massive overregulation.
Argentina finds itself positioned among global leaders in one very undesirable economic metric: inflation. Ranking third worldwide, Argentina grapples with an annual inflation rate exceeding 140%.
Rampant inflation in Argentina, has resulted in Bitcoin being up over 90% from its 2021 high, denominated in Argentine pesos (ARS). This demonstrates a different perspective of how Bitcoin can be a long-term store of value for many people around the world.
The Argentine unemployment rate is below 7% suggesting that the private sector economy in itself may be quite resilient. However, it is being substantially hindered by a bloated federal bureaucracy and fiscal irresponsibility, a problem that currently hits very close to home for the United States. 40% of Argentinians currently live below the poverty line, as a result of high inflation and essentially no financial stability.
Around 2010 Rising inflation and a flight of capital out of the Argentinian Peso caused a rapid depletion of the federal government dollar reserves. As any government with a destabilized fiat currency does, the flight out of pesos prompted a severe curtail of access to dollars in the summer of 2012.
The imposition of capital controls, in turn, led to the emergence of a black market for dollars, known as the “dólar blue”, which traded at a premium to the official USD/ARS exchange rate. These restrictions have since been a problem significantly solved by crypto.
While we often take crypto for granted in the United States, it has actually been a game-changer for citizens of countries with destabilized currencies, high inflation, and little to no access to any form of stability. Crypto technologies have allowed millions of people to get easy access to dollars in the form of stablecoins, access to Gold in the form of gold-backed tokens, and access to what many believe – including us – is a long-term store of value with real utility as money in the digital age, Bitcoin.
This chart depicts which crypto assets are held most as a percentage of holdings, as you can see stablecoins are undoubtedly the most popular use case for Latin American countries, especially Argentina and Venezuela which face the highest inflation rates. Stablecoins have been a game changer for citizens to have easy access to US Dollars to preserve their hard-earned capital.
A New Hope For the Argentine People
In an effort to realign Argentina’s economy onto a new path, President-Elect Milei, has been extremely outspoken about his “right-wing” economic agenda for the future of the country.
Among his proposals have been:
The abolishment of Argentina’s central bank and Peso.
Moving to a US Dollar standard.
Shrinking the Federal bureaucracy by getting rid of various government agencies, “Afuera”.
Enacting significant de-regulation of the economy.
Moving Argentina to a US dollar standard would be a major step in the right direction, and would likely be a good short-term means of stability for Argentine citizens. However, over a longer period of time, the logic of this move would be akin to jumping from one sinking ship, the peso, to another sinking ship, the dollar.
Based on historical data and the United States’ current path of fiscal policy, the Dollar is getting ever-closer to being on its last legs. This being the case, unless there is a drastic shift, the only viable lifeboat for the long term is a new gold-backed currency or, what we believe is the superior alternative, Bitcoin.
2 Ways This Election Could Effect Bitcoin
One, if Argentina actually moves towards the dollar, that means it will become a new buyer of US treasury debt. This scenario would add significant buying pressure to US bonds, and would effectively result in more downward pressure on yields.
This is a bullish scenario for markets, as Argentina will be helping counteract the selling pressure from other countries such as China and Japan, keeping the US Dollar afloat. These Lower yields are good for risk-on assets, and Bitcoin.
If Milei pushes Bitcoin adoption much like El Salvador’s president Bukele, that could also be a good look for Bitcoin. However, What matters is that this will be good for the Argentine people and their economy. Whether the migration is strictly to the dollar or additionally to the adoption of Bitcoin, the Argentine people will be equipped with far better financial stability and firmer grounds for building a new prosperous economy.