What if Argentina Bought 0.5% of Bitcoin?

What if Argentina Bought 0.5% of Bitcoin?

Bitcoin investors in Europe and the United States often forget that, for some people, Bitcoin is much more than an investment. In Argentina, where decades of corruption and policy misadventures have severely devalued the Argentinian peso, Bitcoin can be a lifeline.

Citizens who’ve watched their currency lose its buying power can find a safe harbour in Bitcoin. People who are unable to transfer their fiat wealth from Argentina to other countries can use Bitcoin instead. Bitcoin has seen the same sort of adoption in Venezuela (which has similar economic problems to Argentina but much worse). This has led some thinkers to consider the way Argentina might reimagine its currency policy.

Argentina’s Troubled Peso

Historically, the Argentinian peso has been pegged (or otherwise linked) to the US dollar. For years, one peso was always equal to one USD, simply because the government said so. But when the US raised interest rates during an economic recession in Argentina, the peso was obviously massively overvalued. The peg collapsed and the peso plummeted to its true fiat value – whatever value people agree upon.

Still flush with a reserve of US dollars, some citizens are imploring their government to consider investment in Bitcoin (BTC). Government financial reserves are one of the ways governments build confidence in their currency. By diversifying into a novel asset that Argentinians already like, perhaps Bitcoin could add stability to the peso.

One proposal suggests that Argentina buy Bitcoin equal to 1% of its national reserves. This 863,000 Bitcoin (give or take) would represent about 0.5% of Bitcoin’s total circulating supply.

What Would Happen if Argentina Bought That Much Bitcoin?

A move like this would be uncharted territory. Bitcoin is internationally used, but it can hardly be said to be a true global currency – at least not yet. But a major purchase by a world government might change that.

It’s important to note that Bitcoin would not become an official currency of Argentina. Instead, it would merely strengthen the nation’s financial foundation. On the other hand, such a policy decision might prove to be misguided. Cryptocurrencies are anything but stable. For a nation to put such significant stock into Bitcoin might seem like a move of desperation, further eroding confidence in the peso.

Perhaps we should look to Venezuela, where a cryptocurrency has literally become a new state currency. The Venezuelan Petro is a state-issued cryptocurrency, but one without the economic integrity of Bitcoin. The Petro relies on citizen confidence for its value. Bitcoin exchanges price on several other factors, such as mining profitability, user adoption, merchant acceptance, and other factors.

Of the two possibilities, an Argentinian Bitcoin reserve is the more sensible. Only time will tell if a cryptocurrency strategy like this can truly buoy a struggling currency.

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