Contrary to global trends, demand for – and sales volume of – Bitcoin are on the rise in Argentina, acting as a catalyst for the cryptocurrency’s upward price action which has seen many failed rallies in the near past.
Argentina’s Sagging Economy
The economy of the South American country is in crisis owing to rising interest rates in the US and a severe drought that hit the nation this year. The result is increasing inflation and depreciating Peso, the local currency. The drought has severely impacted agricultural yield, which contributes 10% to the GDP, to the tune of 40% losses in grain. Also, as the US takes steps to strengthen its economy, including a hike in interest rates, money has started flowing back into the country impacting emerging markets like Argentina. The GDP has seen a steep drop by -4.5% in the current fiscal quarter.
The previous regime’s policy of printing more currency to deal with its rising debt has led to high inflation which currently is hovering around 25% and a plummeting Peso which has lost more than 50% of its value since May.
Bitcoin the Saviour
To prevent their hard-earned money from losing value, Argentinians are hedging their losses by moving out of pesos and buying into a more stable Bitcoin. Unlike other markets which, since January this year, have seen volumes dropping, the weekly purchase volume chart in Argentina tells a different tale. Sales volumes have been rising week after week for the past several months. Bitcoin commands an almost 3% premium over prices in other countries.
Even the Argentinian Central Bank is mulling over diversifying a portion of its currency reserves into Bitcoin, as by design the cryptocurrency is deflationary. The supply of the digital currency is capped at 21 million, out of which close to 17 million have already been mined. The demand for the cryptocurrency created by the central bank and growing numbers of retail customers is likely to help Bitcoin break through key resistance levels.
Growing Penetration and Adoption
The country already has more than 8000 stores where customers can buy and sell not only Bitcoins but also goods and services with it. That augurs well for the adoption of the cryptocurrency as a medium of exchange and not only as a store of value.
Similar economic conditions exist in other neighboring countries like Chile and Venezuela which are also witnessing a similar surge in buy volumes. With the US Fed likely to keep raising interest rates, more nations will likely look to Bitcoin as an instrument for hedging. Argentina may well act as the trigger that traders, investors and cryptocurrency bulls alike have been waiting for since its fall from the all-time high of $20K.
Do you agree that the increasing purchase volume in Argentina will trigger a Bitcoin rally? Let us know in the comments below.
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