In Argentina, where triple-digit inflation and strict currency controls are the norm, locals are turning to a unique solution to preserve their wealth: secret peer-to-peer crypto exchanges known as “crypto caves.” These underground markets allow Argentines to buy US Dollar-pegged stablecoins, primarily USDT, offering a lifeline against the devaluation of the Argentine Peso (ARS). But why are Argentines opting for stablecoins over Bitcoin?
The Rise of Crypto Caves in Argentina
Argentina’s economic woes have led to the emergence of “crypto caves” – clandestine exchanges operating discreetly to facilitate the purchase of USDT and other stablecoins. Guillermo Escudero, the strategic alliances manager for CryptoMarket, describes these caves as hidden places where individuals can exchange local fiat for cryptocurrencies, primarily USDT, at rates far better than official channels.
“It is not a normal commercial place with public attention. They are hidden places where one goes with prior confirmation to meet and can change their local fiat money against cryptocurrencies, mostly USDT.”
See Also: OKX Launched Crypto Exchange Services And Non-custodial Web3 Wallet In Argentina
Why USDT? Escaping Inflation and Currency Controls
Several factors contribute to the popularity of USDT in Argentina:
- Escaping Currency Controls: Argentina’s strict currency controls limit access to US dollars through official channels. Crypto caves provide a workaround, allowing Argentines to acquire dollar-pegged assets.
- Combating Inflation: With inflation soaring, the Argentine Peso is rapidly losing value. USDT offers a stable alternative, preserving purchasing power.
- Storing Value: Local banks cannot officially accept dollars, making crypto wallets holding USDT a popular way to save in “digital dollars,” protecting savings from devaluation.
Ramiero Raposo, vice president at crypto payroll firm Bitwage, highlights this benefit:
“Having the ability to save in ‘digital dollars’ allows Argentinians to save money in the long run as the local currency loses value.”
https://twitter.com/richkane_/status/1402635822407499778
The History of Crypto Caves
Crypto caves are not a new phenomenon. They evolved from “financial caves” that emerged in the 1980s when Argentina first introduced currency controls. This led to the creation of the “blue dollar” – Argentina’s unofficial dollar rate – which currently offers a significantly higher exchange rate compared to the official rate.
Last December, the official rate hovered around 365 ARS to the dollar but has increased to 829 ARS since economist Javier Milei became the country’s new president in December.
Argentina’s inflation rate hit a 32-year high of 211.4% in 2023, per the latest Jan. 11 figures from the country’s statistics agency, INDEC.
See Also: How Is Pyth Network (PYTH) Doing Since Binance’s Listing?
The Risks and Future of Crypto Caves
While crypto caves offer a valuable service, they are not without risks. Escudero notes that some caves have been investigated and raided by authorities. However, locals generally view them positively, seeing them as a vital outlet for trading inflation-ridden pesos.
“[This is a result of] having a government that arbitrarily prohibits access to a money exchange market that should be free as it is in the rest of the world.”
https://twitter.com/alexeiZamyatin/status/1724140325013188903
The future of crypto caves is uncertain. Escudero believes that Milei’s expected removal of currency controls could reduce their demand. However, he also suggests that high tax pressure in Argentina might ensure the continued existence of a “black market” operating outside official oversight.
Escudero also mentioned that crypto caves exist in Cuba, Venezuela, Iran and several African countries.
Why Not Bitcoin? The Volatility Factor
While Argentina has moved to legalize Bitcoin for contracts, its adoption as a primary means of exchange remains limited. María Fernanda Juppet, CEO of CryptoMarket, explains that Bitcoin’s volatility makes it less attractive for businesses operating in a high-inflation environment.
“At some point, the transaction will have to convert into Argentine pesos, with its inflation issues [and] you agree to a contract using Bitcoin as a payment method that can have daily price variations over 10% based on a tweet.”
“From a corporation’s point of view, that is adding volatility over volatility,”
Escudero adds that Argentines prefer USDT on the Tron network due to its speed, low cost, and stable 1:1 parity with the US dollar. This eliminates the need for frequent conversions, making it a more practical option for everyday transactions.
“This is due to its speed of accreditation, and at its accessible cost, in addition to the fact that it has no variation being its parity 1:1,” he said.
“This avoids the need to make conversions at the time of sending balances.”
https://twitter.com/BowTiedMara/status/1680184021735682049
Conclusion: A Temporary Solution?
Crypto caves and the use of USDT in Argentina represent a fascinating case study of how cryptocurrency can provide a refuge from economic instability. While the future of these underground exchanges remains uncertain, they currently offer a vital service to Argentines seeking to protect their wealth from inflation and currency controls. As Argentina navigates its economic challenges, the role of cryptocurrency will likely continue to evolve.
Disclaimer: The information provided is not trading advice, Bitcoinworld.co.in holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.