- Inflation in Argentina is now nearing 100% as peso savings are crushed
- Bitcoin, despite collapsing over the past year, is up against the peso
- Weak currencies are often cited as an advantage for bitcoin, but in Argentina’s case, it would be worse, writes our analyst Dan Ashmore.
- Stablecoins present a better case, they argue, with the US dollar up 87% against the peso through 2022
This is a good argument, which states Bitcoin Purpose-built for the developing world. a more accessible financial system; A means through which citizens can bypass failed currencies.
In theory, it makes sense, and it’s something I’ve written about extensively in the past. As risky and experimental as bitcoin is, one could make a case that this esoteric digital currency could – one day in the future – provide a way for such financially oppressed people to protect their wealth.
but that’s the day Not now. In fact, bitcoin is completely useless for such a purpose. This is despite the chart below showing that bitcoin has appreciated in value against the Argentine peso over the past year.
This has seen some bitcoin advocates – and to be clear, I am a bitcoin investor – declare that this is a poignant demonstration of bitcoin’s power. But it’s important to be careful about what we’re benchmarking here. The Argentine peso is literally one of the world’s worst performing currencies in recent years – plotting its value against the US dollar shows just how far it has fallen.
bitcoin is not better than peso
This analysis of the Argentine peso really has nothing to do with bitcoin. This directly highlights how hot the peso has been as a store of money, and how devastating its devaluation has been for its citizens.
But imagine someone’s wealth is in bitcoin? What if you were looking to send your child to college in January this year? Tuition is, let’s say $10,000. Imagine if you deposited $10,000 in bitcoin back in November 2021 (when it was trading at $68,000). If tuition was due on January 1st of this year, your $10,000 would drop to $2,400. Do I need to say anything more?
Rather than benchmarking bitcoin as one of the worst store-of-value, it should be compared to, well, a true store of value. If bitcoin is to replace money, it’s not really a win if it’s better than one of the worst forms of money out there. This is the ultimate straw man argument.
Let us chart bitcoin against the established currency. In the graph below, I have plotted the weekly percentage moves of the Euro against bitcoin (both against the US Dollar). It is like comparing night and day.
Stablecoins Suit Argentina Better Than Bitcoin
The Argentina example serves as a more intriguing example when considering a different type of crypto – stable coins. Theoretically, this opens up access to the dollar to those who would otherwise be closed out (through capital controls, banking barriers or otherwise). And at the same time, the asset being purchased – dollars – is a store of money worthy of firing into college savings.
Could the day come when this could change? Sure, who knows what happens in fifty years. But I’m talking right here, now. And an Argentinian going from peso to bitcoin would be like jumping through one fire and into the next. For everyday Argentinian citizens fearing for their own money, is there an argument that advocates for stable coins over bitcoin?
So, arguing for a stablecoin is one thing. And yes, I can see it – citizens of hyper-inflationary regimes getting crushed as their currencies devalue into oblivion.
But bitcoin? How can you look at these currencies and then decide that bitcoin is the solution? I’m as fascinated with bitcoin as anyone, and I believe the store-of-value narrative is what should propel the magical orange coin over the long term. And hey, maybe we’ll revisit this peso vs usd vs bitcoin debate in 25 years time and have a different conclusion.
But now, in the year 2023? Bitcoin is not the answer for Argentina. far from it.