Economist: Argentina is Hedging Currency Crisis with US Dollar, Not Bitcoin

Currency wars in full swing, All paths inevitably lead to Bitcoin

  • But “Argentines are obsessed with and hedge with the dollar”
  • While gold hit six-year peak, BTC is down 1.29%

Argentine peso shed more than 25% of its value against the US dollar after President, Mauricio Macro lost the first round of elections by a far greater margin than expected on Sunday, early results showed.

The market friendly president promised to continue with the same austerity-driven approach he was following, if elected later this year.

However, now the results have cast a serious doubt — “increasingly bleak”— over his reelection chances in October and a possible return to the policies of Cristina Kirchner, Macri’s predecessor.

In response, the main Argentine stock market fell 35%. The S&P Merval Index experiences its second-biggest rout in the past 70 years by plunging 48% in dollar terms, reported Bloomberg. South America endured similar on-day sell-off in 2002 while only Sri Lanka has suffered a worse sell-off since 1950.

Argentina's sovereign century bonds also dropped by the most since they were sold in June 2017. The notes tumbled to a record low, taking the yield to more than 12.2%.

The cost to protect Argentine against default also soared.

Peso depreciation now could see Argentina’s central bank stepping in to increase interest rates, in an attempt to manage the fallout.

“I don’t think there’s a way to sugar-coat this. We’re likely to see panicked market reaction,” said Abhijit Surya, an analyst at the Economist Intelligence Unit.

Currency wars in full swing, All paths inevitably lead to Bitcoin

Last Monday, China’s central bank let its currency yuan fall below the important psychological level 7 against the US dollar. This Monday, Argentina’s peso tumbled.

It makes sense that Argentina people will turn to Bitcoin, a deflationary and decentralized asset. However, that’s not the case, says economist and trader Alex Kruger.

“Argentines want to protect themselves against the peso losing value versus the dollar. And for that, they buy dollars,” explained Kruger (about his country).

Kruger is a Bitcoin believer and openly bullish about the crypto-asset but the Bitcoin narrative can’t be pushed into this particular situation, he said.

“The peso and all Argentine risk assets collapsed overnight in response to a very specific political event i.e. primary elections and the almost certain return to power of a socialist corrupt regime.”

Lack of Crypto Education and Liquidity in the Market

It’s not only about the US dollar, though. Kruger said, Bitcoin awareness, contrary to popular belief is “extremely low” in Argentina, outside of tech industry where it is high. Moreover, the Argentine bitcoin market is small, as such

“Bitcoin/ArgentinePeso market is highly illiquid.”

Local exchanges like Buenbit, traded only 19 BTC, and, had under 50 trades, lack volume while brokers don't have exchanges rather offer only brokerage.

As for the ever-growing volumes on LocalBitcoins, he says, it is growing in ARS terms due to the depreciation of the peso. As a matter of fact, Kruger notes, volume has been dropping, registering only 23 BTC in total last week.

“Argentina is a quasi-dollarized economy, Argentines are obsessed with and hedge with the dollar,” said Kruger.

This means Bitcoin still has a long way to become a hedge as further evident from the fact that whie Gold prices climbed to six-year peak, BTC/USD tumbled, currently trading at $11,234, in red by 1.29%.

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