Will Argentina Be the Next Venezuela?

Matt Ahlborg
11 min readApr 27, 2020

Versión en Español disponible aquí.

Trading of the Argentine Peso (ARS) on LocalBitcoins, a frequent bellwether for global Bitcoin adoption, hit an all time high this April. This record coincided with the implementation of new capital controls which began accelerating last fall.

And while it might be easy to see this circumstance cleanly as proof of Bitcoin’s superiority as money in Argentina, the situation is more complex and deserves our analysis. In truth, Argentina has long had economic, monetary, and political circumstances which many say are favorable to Bitcoin adoption. However, its overall footprint, at least from the perspective of LocalBitcoins, is still relatively muted in comparison to other countries. Today, Argentina’s volume on LocalBitcoins is still only 4th in Latin America overall and has yet to trade a half million dollars worth of volume in a single week.


So why is the LocalBitcoins footprint in Argentina relatively low given its conditions? Could its incumbent dual currency system be a factor? In this piece I intend to:

  1. Concisely explain the economic, political, and monetary circumstances within Argentina,
  2. Take a detailed look at the status and functionality which the US Dollar already has there,
  3. Evaluate the factors which have led to increased Bitcoin adoption in Argentina and show how those factors have changed over time.

To begin, Argentina:

Economic Basics

  • Is the third largest economy in Latin America,
  • Is rated in the top quartile of the UN’s Human Development Index which takes into account income, life expectancy, and education as variables,
  • Has a diversified industrial base anchored by an export-oriented agriculture industry,
  • Has a large middle class by Latin American standards,
  • Thirty percent still live below the poverty line,
  • Has suffered from economic stagnation for decades.

Political and Monetary Basics

  • Has had several periods of hyperinflation in the previous decades,
  • Has an extremely high tax burden which encourages a large amount of tax evasion and led to a very large informal economy (25% by one estimate),
  • In an event in 2001 known as the Corralito, the government of Argentina froze people’s dollar accounts inside of the banking system, summarily changed the peso to dollar exchange rate, and then confiscated those dollars for pesos at the newly calculated exchange rate, causing a 75% overnight loss of value to those with deposits.
  • From 2001–2012, the economy floundered, albeit slightly forward, as economic restrictions were generally eased,
  • From 2012–2015, capital controls increased under President Cristina Kirchner and a large black market for dollars formed,
  • From 2015–2018 capital controls decreased under President Mauricio Macri and the black market for dollars shrank,
  • From 2019–2020 capital controls were reintroduced as Macri lost power. Controls have intensified to the current day.

Argentina’s Pseudo-Dollarization Explained

While the Argentine government officially administers its own currency, the Argentine Peso (ARS), due to perennial bouts of hyperinflation and economic instability over the years, citizens of Argentina have been conditioned to lean on the US Dollar as both a means of exchange as well as a store of value. The government even tolerates this dollarization to a degree and allows citizens to hold and transact dollars in their bank accounts and across the financial system. However, official tolerance of the US Dollar has ebbed and flowed over the years and these custodied dollar accounts inside the system have been pilfered from by the government on occasion with the Corralito being the most remarkable.

In addition to the freezing and confiscation of custodied dollars, the government also frequently deploys a myriad of measures which directly or indirectly restrict, tax, or otherwise manipulate official dollar accounts there. These abusive measures have created a deep distrust of the custodied banking system there and has caused Argentine citizens to minimize to the largest extent possible their money (both pesos and dollars) residing in government sanctioned bank accounts.

Consequently, electronic dollars held in official bank accounts in Argentina generally have less value than physical dollars held under mattresses or electronic dollars held in offshore accounts. This has led to the existence and prevalence of a black market for US dollars outside of the system and a corresponding unofficial exchange rate known as the “Blue Dollar” rate.

The Informal Economy and the Blue Dollar


As described in the previous section, there exists two US Dollar systems in Argentina: one which exists inside of the custodied banking system, and one which exists outside in the forms of paper cash and offshore accounts beyond the reach and control of the government of Argentina.

The system which exists outside of the government’s control is facilitated by an informal network of unofficial money transmitters in establishments known as Cuevas. Cuevas, Spanish for caves, are clandestine money transmission operations which are hidden in back rooms of stores, apartments, or other hidden venues.

These informal money transmitters are officially illegal in Argentina but have nonetheless survived over the years due to high corruption and limited enforcement.

Some examples of when one might use a cueva in Argentina are as follows:

  1. Running a retail store which underreports its cash sales to avoid taxes. In this case, they would take unreported peso income from sales at their store and convert it into physical US Dollars at a cueva to hold at home “under the mattress”.
  2. Investing abroad without paying taxes and fees through the Argentine banking system. In this case, one could withdraw pesos or dollars from their Argentine bank account and bring them to a cueva and ask that the physical money brought be delivered in electronic form to an offshore account of one’s choosing.
  3. Transferring money earned outside of Argentina back into the country. In this case, one could contact a cueva from abroad and ask them to deliver physical money to a family member in Argentina. In exchange, the person abroad would send a US dollar wire transfer to an offshore account controlled by the cueva.
  4. Most commonly, normal Argentines simply want to convert their hard-earned pesos into US Dollars to stow away as an inflation hedge. As of last fall, the government officially only allows $200 USD per month to be saved via the formal banking system. Anyone wishing to save more than $200 USD per month must turn to cuevas to fill their needs.

From the perspective of an environment where taxes and corruption are relatively low, some of this activity may seem unsavory. However, in Argentina, this behavior is commonplace as even top politicians, including the last two presidents, have been caught regularly underreporting income or holding offshore bank accounts in an effort to evade taxes or conceal sources of funding. In highly corrupt societies where the ruling class cheats, the people who follow the rules go hungry.

Dollar and Peso Functionality in Practice

To further understand the relationship that dollars and pesos have in the Argentine economy, examine the following findings below:

  • Government workers are paid in pesos,
  • Salaries in private industry are mostly paid in pesos,
  • People working in the informal economy may be paid in pesos or blue dollars,
  • Government subsidies like welfare and social security are paid in pesos,
  • Most rent paid in pesos, however some living in wealthier neighborhoods arrange to pay for rent in blue dollars,
  • Groceries are bought with pesos and utility bills are paid in pesos,
  • Real estate purchasing is done with a mixture of official dollars and blue dollars. It usually happens where a property might officially sell for 40% below its actual value. The registered transaction shows an official dollar exchange taking place between bank accounts while a side agreement “off the books” will involve cash dollars exchanged at the time of sale,
  • Heavily regulated industries such as agriculture must hold pesos and dollars in official accounts and have little recourse in avoiding that,
  • Remote workers for companies outside of Argentina can generally get paid in dollars,
  • Expensive goods sold in secondary markets (such as electronics) may be paid for in cash dollars.

How does Bitcoin fit into the landscape of Argentina?

Given what we now understand Argentina’s economic and political issues, why haven’t we seen greater Bitcoin adoption yet? Where exactly does Bitcoin fit in?

In a recent article that I wrote about Bitcoin in Venezuela, I showed that, for the most part, Bitcoin was being used there not as a store of value endpoint, but rather as a channel on the road to obtain more stable currencies such as the US dollar. That is, people would purchase Bitcoin with Venezuelan bolivars in order to immediately turn around and trade them away for US Dollars held in offshore accounts. In Argentina, however, there already exists an extensive informal infrastructure to obtain dollars through the cueva networks. Consequently, Bitcoin is needed a lot less.

I learned this first-hand in my interviews with Argentines as I tried to convince them to set up accounts on P2P trading platforms only to be told that they were already having their needs met by cuevas and that their exchange rate was already pretty darn good.

In carefully observing the Latin American Bitcoin trading markets over the last few years, I believe that there are three primary forces impacting Argentine volume. In the following charts, I will bring in data layers which I believe are good proxies of these forces and show how they have acted in concert to push the volume to where it is at today:

1. Bitcoin Price Speculation

Bitcoin price and interest bubbles have heavily impacted volumes globally, and trading of ARS on LocalBitcoins is no exception. My proxy for price speculation is Coinbase, a Western exchange associated with speculative volume:

Note how spikes in volume on Coinbase compare to the spikes in ARS volumes on LocalBitcoins. This suggests that a component of the ARS volume on LocalBitcoins is also speculative in nature.

2. The Crisis in Venezuela

In the article I wrote about the Bitcoin and Venezuela, I also uncovered the fact that Venezuelan migrants all across Latin America were using LocalBitcoins to send money home to their families. The process involved two transaction events where first the migrant would purchase Bitcoin with Argentine Pesos in Argentina and then turn around and sell that Bitcoin for Venezuelan bolivars in Venezuela through a bank transfer. This activity has accounted for a lot of the volume in Argentina over the years. My proxy for the situation in Venezuela is Venezuelan Bolivar (VES) volume on LocalBitcoins:

Note how the rise of ARS volumes paired along with the rise in VES in 2018–2019, even as speculation (in previous chart) waned.

3. Problems Endemic to Argentina

Lastly, economic and political problems, namely the reintroduction of capital controls, have played a role in volume growth, especially recently. My proxy for capital controls is a percentage representation of the divergence that the Blue Dollar has taken from the official exchange rate of the Argentine Peso:

Notice how the divergence begins to take off in the Fall of 2019 just as ARS volumes take also increase despite the crisis (and volume) in Venezuela decreasing.

In summary, I believe that these three forces have primarily contributed ARS volumes but that their relative influence on that volume has changed over time. I have attempted to capture this changing influence in the next chart where I show the changing correlation between each contributing data layer against ARS volume over time:

Note how Coinbase volume and VES correlate highly in 2017, how VES volumes correlate highly during 2019 as the crisis there peaked, and how Blue Dollar divergence is now the leading correlation.

The data shows that problems endemic to Argentina are likely now the primary growth force acting on LocalBitcoins ARS volumes. If we take an even closer look since the reintroduction of capital controls last fall, we can even see spikes in volume related to particular capital control measures and economic events:

Sources: (1), (2), (3), (4), (5), (6), (7), (8).

In addition to ARS volume, it is worth mentioning that there is a significant amount of US dollar volume emanating from Argentine LocalBitcoins accounts as well. When I visited LocalBitcoins in January of this year, I was able to see that Argentines were trading approximately $20,000 USD every day and it may have gone up since then.

Bitcoin’s Opportunity in Argentina

Now that we have established that problems endemic to Argentina are likely being addressed by Bitcoin, how can companies in the space better capture this trend? In my opinion, Bitcoin products catered towards Argentina will see the most success if they make access to dollars easier or if they can create Bitcoin products which have stability like US Dollars such as Valiu’s new Bitcoin-backed dollar stablecoin, commerce acceptance such as Bitsika’s virtual visa cards, or foreign market investment potential such as Abra’s crypto-backed synthetic stocks and ETF’s. Lastly, I think that payroll services which leverage Bitcoin or stablecoins will be able to serve the vibrant Argentine freelancer market as official bank wire payments to Argentina are highly inefficient compared to informal methods.

From what I’ve learned in researching Argentina, the crypto development community there is perhaps the most vibrant in all of Latin America. Other exchanges active there include Ripio, Buenbit, SatoshiTango, Paxful, and AirTM, with Ripio operating an OTC business as well. Buenbit, Ripio, and SatoshiTango operate DAI markets as well and reportedly show strong DAI volume. I also learned that several cuevas have begun incorporating Bitcoin trading into their money transmission services because in some cases it actually helps in cross border value transfer.

Looking Forward

So, will Bitcoin adoption take off in Argentina and rival that of Venezuela’s? In my opinion, it will depend on several variables, namely:

  • Will the Argentine government continue to lay on new capital controls or will it back off and let free markets reign?
  • Will the Argentine government crack down on cuevas?
  • Will new products in the crypto space make the Bitcoin experience less volatile and more user friendly?
  • Will the United States make it easier for companies to onboard Argentine citizens into US accounts through the internet?

In totality, irrespective of which national-level monetary policies governments around the world end up decreeing, I believe they will become less enforceable as Bitcoin and the internet will increasingly provide an option for citizens to simply say “no”. Additionally, I believe that this new shift towards open finance will have deep ramifications on emerging economy currencies going forward. If you wish to apply and test this hypothesis in the real world, there are few better places to observe than Argentina. And if you wish to bet on this trend, buy dollars and Bitcoin.

If you are interested in learning more about Bitcoin’s growing impact on the world, please visit my website UsefulTulips.org where you can browse LocalBitcoins and Paxful volumes (and other data) for over one hundred currencies around the world. Additionally, please follow me on Twitter, where I regularly post pithy observations relating to the utility use of cryptocurrency around the world.

Thanks to the team at dlab for their research sponsorship and guidance over the last year. And thanks also to Paxful for contributing to a new sponsorship.

Lastly, thank you Jose Baredes, Gustavo Bessone, Franco Amati, Mariano Di Pietrantonio, and Eduardo Gomez for their help in providing information on the situation in Argentina. Thanks to Boaz Sobrado helping with the data ingestion. And thank you to Marina Spindler for painstakingly translating this in to good Spanish.

Beer money: 3DT599SqPhDakzL4cJ3tnbFTKxVBk3fwvo

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