This post is also available in: Español
The Argentinian Peso plunged 16 percent on Thursday, accelerating the devaluation of the South American country’s currency. The peso has now fallen 56 percent over the past year.
The sharp decline comes after Argentinian President Mauricio Macri asked the IMF to speed up the release of its requested 50-billion-dollar bailout. The bailout was initially negotiated last month. This crisis comes a year after the Argentinian government offered 100-year treasury bonds to market, which highlights investor’s confidence in the Argentinian government just last year.
In response to the peso’s decline, the Argentinian central banks raised interest rates to 40 percent. This action spooked investor confidence in other emerging markets. The FTSE Index, a proxy for emerging market currencies, fell 1.3 percent on Thursday, its largest decline in three weeks.
The cost to insure against an Argentinian government default through credit default swaps rose by 100 basis points, or one percent, to 758bp. This puts Argentina only behind Venezuela as the second most expensive credit default swap in the world.
Bitcoin as an apolitical store of value
In times of inflation, citizens rush to exchange their declining wealth into assets that hold their value. Historically, that safe haven has been gold, but with gold’s diminished role in our financial system, the US dollar has taken over that role. One value proposition of crypto, bitcoin in particular, is its potential as an apolitical store of value. The reason bitcoin could excel in this role is because the currency has proven its resistance to debasement. There will only ever be twenty-one million bitcoins, and no one, especially desperate governments, have the ability to inflict their will on it and print more.
This thesis is gaining some real-world traction. A recent report by ING shows that Turkish citizens hold more crypto than any other country’s citizens. Turkey is currently battling its own currency crisis. Turkish President Recep Tayyip Erdogan has encouraged its citizens to sell US dollar and euros to help support the Turkish Lira. Are the Turkish people hedging with bitcoin?
Argentina can now be added to the list of countries that include Zimbabwe, Venezuela, Turkey, and Iran that have seen major currency declines over the past few years. Bitcoin still needs to prove itself as a legitimate store of value, but the time for it to shine may be just around the corner.