Posted March 2 2024, updated May 31 2024
Summary
- One-third of Argentina uses crypto for everyday transactions and to hedge against currency depreciation and inflation; Argentina is the largest crypto adopter in Latin America, with these rates rising exponentially during 2023.
- President Javier Milei, self-branded anarcho-capitalist, is pursuing plans to scrap the fiat currency, replacing it with whatever currencies Argentinians want to use, including crypto.
- New legislation has the potential to embolden the use of crypto, with President Milei’s government proposing a limited taxation environment for cryptocurrency holdings, but greater clarification is needed.
- Read other stories of Crypto in Action.
How is crypto used in Argentina?
Argentina has faced economic difficulties since the 1980s, undermining long-term business planning and individual saving. This has created fertile ground for the take-up of cryptocurrencies, which are used by approximately 5 million Argentinians for everyday transactions and to hedge against both currency depreciation and inflation – in January 2024, the cost of key goods and services rose 254% year-on-year.
As a result, Argentina is the leading Latin American nation for crypto in terms of raw transaction volume (approximately $85.4 billion, value received), and ranks second for adoption. It’s difficult to obtain foreign currency, so cryptocurrencies, particularly stablecoins, have proved the next best thing. Underscoring the extent of this, in February 2024, a report revealed that in the previous six months, Argentina had recorded the largest purchases and holdings of stablecoins in the region.
As of December 2023, Bitcoin is an official currency, and can be used in legal contracts. In March 2024, demand for Bitcoin rose to a 20-month high, with Argentinians preferring to buy this cryptocurrency than exchange pesos for US dollars, as they’ve historically done.
On a daily basis, an estimated one-third of Argentinians use cryptocurrencies. They use them much like the fiat, the Peso. For example, regional digital company, Lemon Cash, provides users with a debit card tied to their crypto account, which they can use to make purchases at any retailer that accepts cards. When used, the crypto amount is sold from the user’s account and the business receives payment in the fiat currency. Approximately 2 million Argentinians use Lemon Cash.
Peer to Peer (P2P) exchanges are popular in Argentina, and crypto is an important means by which Argentinians receive millions of dollars in remittances each year.
What is the Milei government’s position on crypto and tax on crypto?
President Milei has long been an advocate of cryptocurrencies, arguing that they “return money to its original creator, the private sector.” Underscoring the excitement in the sector about his victory in November 2023’s presidential elections, the value of Bitcoin rose above $37,000, while crypto markets rose 2%.
Before the change in government, the crypto sector in Argentina was developing, supported by a conducive taxation situation. Digital asset holders could declare their holdings and pay a fixed tax of 0% for anything under $100,000 and 15% on any amount above this threshold.
In January 2024, the government unveiled a proposed bill, the Law of Foundations and Initial Measures for Argentinian Liberty, which if passed aims to dismantle government control of the financial sector. As part of this, the legislation seeks to alleviate taxation. Cryptocurrencies were deliberately excluded, which has been interpreted as meaning that those with such holdings will not be taxed. Tax will, however, be paid on capital gains generated through sales (to a given threshold), and international cryptocurrency transfers will be subject to taxation ranging from 5% to 15%; a move that is designed to attract foreign crypto investment.
Also taken as a positive move was the agreement that cryptocurrencies can be declared without proof of origin. But the taxation changes have attracted critics who argue that the proposed bill treats the crypto sector unfairly, and prefer the 0% taxation rate of the existing legislation.
What does the overhaul of the Argentinian economy mean for crypto?
President Milei’s campaign saw him pledge to scrap the Peso in favor of a system where Argentinians can use any currency. Early indications are that he has side-lined this goal, temporarily at least, in favor of reforms aimed at wiping out the budget deficit from 5% in 2023 to 0% by the end of 2024.
Shortly after coming to power, his government unveiled a series of sweeping reforms, including devaluing the Peso by more than 50%, and increasing taxes on both imported and exported goods.
President Milei is keen to deregulate many sectors of the economy, laying out 300 such measures. Among these is a clause that lays the groundwork for the dollarization of the economy, but the important aspect for crypto is that it states that contractual obligations and debts can be expressed and settled in a foreign currency, even if it is not deemed a legal tender in Argentina. This has been read as meaning that Argentinians could use any cryptocurrency as legal tender.
Argentina scores possible world-first: paying for rent with Bitcoin
Underscoring that this is more than just sentiment, in January, Argentina became possibly the first country to draw up a rental contract in which the renter will pay the landlord in Bitcoin. The parties agreed to make and receive payments through the Fiwind platform, which they reportedly both use. Proponents are suggesting that this is just the start of crypto’s march on the Argentine economy, and it is certainly a market that is developing.
In February, cryptocurrency exchange, OKX, announced the launch of its crypto exchange services and non-custodial Web3 wallet in Argentina, which it states will offer a secure portal to manage DeFi, trade NFTs and use dApps.
Separately, local crypto service provider, Ripio, announced in August 2023, the release of the Criptodólar, regarded as the region’s first stablecoin. It also marks the start of the region’s development of its own blockchain technology.
Greater regulatory clarity is needed for crypto in Argentina to thrive
President Milei’s anti-establishment, pro-market stance has led many to believe that he will throw his full support behind crypto. It is, however, possible that his wider economic beliefs and goals for the economy will stand at odds to the country’s crypto development.
Already, Interior Minister Guillermo Francis has said that a lack of political consensus underscored the decision to exclude cryptocurrencies in the proposed taxation legislation. Furthermore, while there is the potential for President Milei to be a strong advocate for the crypto sector, his reform program has quickly met with resistance from a range of diverse interests, including Argentina’s powerful trade unions.
External pressure may also derail plans. As part of Argentina’s agreement to borrow $45 billion from the IMF in 2022, it was stipulated that the government “discourage the use of cryptocurrencies with a view to preventing money laundering, informality and disintermediation.”
As a result, in May 2023, the central bank banned banks and payment apps from offering services related to digital assets that it hadn’t regulated (although given it hadn’t regulated any, the ban effectively covered all digital assets). The move was designed to reduce the payment system’s exposure to what were deemed risky assets.
Currently, the IMF is supporting President Milei’s economic program, with its managing director, Kristalina Georgieva, stating that the administration “is taking bold actions to restore macroeconomic stability and begin to address long-standing impediments to growth,” but has remained noticeably quiet on the issue of crypto.
In recent years, the previous government made attempts to update and enforce anti-corruption measures, and was removed from theFinancial Action Task Force (FATF)’s follow-up procedure in 2014. Problems remain, however, and notably the country’s ranking dropped in the 2023 Transparency International Corruption Perception Index.
As the situation stands, President Milei’s government has said little about this aspect of the crypto sector, and no further or new measures related to AML or KYC have been tabled to address these types of problems. In February, however, ahead of a FTAF visit, local media reported that the president was preparing to issue an emergency executive order to regulate cryptocurrency service providers. The president is seeking to create a framework that would regulate their operation under the oversight of the national securities watchdog.
Underscoring the continuing mixed outlook, in March 2024, a new Registry of Virtual Asset Service Providers was announced. This makes it mandatory for all providers, individuals, and both local and international companies operating with crypto to register with the authorities. Failure to do so will prevent them from operating.
This tightening of compliance was voted on before President Milei came into office, but it comes at a time when people are seeking clarity on his crypto position. President Milei’s decision to postpone the removal of the central bank and dollarization of the economy was regarded by some as backtracking on his earlier rhetoric and ideas.
Outlook for crypto use in Argentina
Taking President Milei’s presidential campaign comments at face value, his presidency suggests that Argentina is poised to become one of the world’s most crypto-friendly countries. In this respect, the passage of proposed legislation, as well as future legislative changes, is being closely watched to see signs of this developing.
Certainly, forecasts suggest healthy growth for the crypto sector in Argentina. Revenue is expected to show an annual growth rate of 15.37%, which by 2028, would give a value of $343 million. But the government needs to create an ecosystem that is clear and conducive to a widespread digital shift.
What Milei’s administration will choose to prioritize amid the reform battle is currently unclear. Proponents will hope that the crypto sector is among his priorities because with the right policies, cryptocurrencies have the potential to underpin the country’s broader financial health, giving the population and its businesses the first real opportunity in decades to secure their wealth, savings, and business operations.
