TLDR Argentina’s National Securities Commission recently met with El Salvador’s sister organization to discuss the adoption and regulation of cryptocurrencies. While things are highly speculative, a case can be made that Argentina will become the first large country that adopts Bitcoin. A favorable government and a currency crisis are two preconditions that currently exist.

The meeting between the countries, which focused on El Salvador’s Bitcoin adoption, was formally confirmed. It comes in the wake of the announcement at the end of 2023, that the Argentinian government was drafting a decree to permit the use of Bitcoin and other digital currencies for transactions under specific conditions. Let’s say, a baby step on the way to hodling… 

What can Argentina learn from El Salvador?

Argentine’s Dismal Economy and Currency

More than 50% of Argentina’s population lives below the poverty line. The nation’s currency, the Argentine peso, has never been a good store of value, to say the least. But recent years have been brutal.

In Argentina, there has been a lack of foreign direct investment over several decades. A complex bureaucratic system delays the formation of new businesses.

Moreover, currency controls restrict people’s access to foreign currencies making the free trading of the peso hard. This further isolates the already weak economy. Since May 2023, the black-market rate for the peso has surged by 240% to 1,200 ARS per U.S. dollar, which is 20% higher than the official rate.

Argentina is in dire straits. Fortunately, some Argentinians are taking matters into their own hands to improve their future. Crypto Hub Crecimiento is an example.

Crypto Hub (in) Argentina

Crypto adoption is big in Argentina. In 2023, Argentina ranked 15th on the Chainalysis Global Crypto Adoption Index. Crypto usage in Argentina, more than in the US, serves as a practical means of doing daily transactions. If you can’t get your hands on real dollars because of the government’s capital controls, you can always use stablecoins! Sending some stablecoins via Tron with your Muun wallet: many Argentinian Zoomers and Millennials are familiar with it.

Unlike in El Salvador, where, except for foreigners in Bitcoin Beach, crypto usage was low before the Bitcoin law was introduced, Argentina has a larger grass-roots movement of crypto developers. 

A recent initiative to set up a new crypto hub is Blockchain Valley in Buenos Aires. The initiative seeks to expand Argentina’s tech startup ecosystem tenfold, and ensure long-term stability for these startups with supportive regulatory environments.

The goal is to collaborate with Argentina’s new government, which is supportive of cryptocurrencies – more on that below. The organization will lobby for incentives such as tax reductions, financial support, and a simplified business setup process.

New President Milei: ‘Central banking is a scam’

Since December 2023, Argentina has had a new president. A libertarian who believes in more free markets and less bureaucracy. He is an economist by education and has voiced his appreciation and deep understanding of Bitcoin (check out this interview fragment) in the previous bull market. 

Milei has sweeping economic reforms in mind, most of which have to do with allowing the free markets to do their job and cut the swollen government apparatus/spending. Milei has also pursued aggressive measures through an emergency decree, which includes privatizing state-owned enterprises and deregulating various sectors. Of course, these reforms meet with resistance and we’ll have to wait and see if Milei has enough punch to push things through.

So, now you know the state of Argentina: a bad economy and currency, but there is hope because of crypto hubs and adoption and a crypto-friendly president. Let’s turn to El Salvador, guide country in this matter.

El Salvador Keeps Stacking

As you probably know, El Salvador, back in the fall of 2021, was the first nation-state to adopt BTC as legal tender and as a treasury reserve asset. An incredibly bold move by president (some would say: dictator) Nayib Bukele, and a subtle but strong middle finger in the direction of the IMF.

Not long after its first BTC purchases, the orange coin started crashing and at some point, El Salvador’s position was 50% underwater. To its credit, El Salvador kept buying throughout the entire bear market, as can be seen in this portfolio tracker. Since the bear market bottom, El Salvador buys 1 BTC per day.

El Salvador’s current position is more than 55% in the plus. Well played El Salvador, you hodl’ed and DCA’d like a champ!

In March 2024, El Salvador’s president Nayib Bukele publicly shared the country’s BTC address. It currently holds roughly 5.764 BTC. 

Dozens of people started donating tiny amounts to this address, just for the heck of it, but no doubt also to show their appreciation for the first country that stood up for Bitcoin. Nice, symbolic additions to its piggy bank.

Adoption a Success?

A year after the adoption of Bitcoin, economic surveys found that Bitcoin was not widely used in El Salvador. 60% of users of the country’s crypto wallet Chivo stopped using the app after spending their government BTC handout worth 30 dollars. Only an estimated 20% of businesses accepted payment in Bitcoin by 2022. What explains the relatively low adoption?

Cash is still very much king in El Salvador, which might be a reason that adoption hasn’t been stellar. Another reason is probably that the country is traditionally and is still using the dollar, a currency that is of course less prone to value dilution than most currencies of developing countries. 

Another reason that mass adoption isn’t here is that there is no coherent educational process across the country. The hacks of the country’s crypto wallet Chivo also didn’t help.

Taking a step back, one could ask if the use case of paying in BTC is the yardstick of success. Bitcoin is also a savings tool: a way to store value. If El Salvador becomes a nation of hodlers, and generates wealth that way, then what’s not to like? Citizens will no doubt be happy paying in dollars and seeing their nation’s BTC stash go up in value.

While many articles in prominent media outlets in 2022 dunked on El Salvador for the project having failed, the publicity that the country has generated is massive. At least in Bitcoin circles. And guess what: these folks have money and they have a loud voice. Bitcoin adoption has resulted in higher in-migration of businesses and capital to El Salvador.

All in all, it feels like deserved that president Bukele did a little victory lap on X recently.

Other Countries on the Horizon?

El Salvador has shown that it is possible to face scorn and a bear market and come out richer on the other end. Before Bitcoin crashed in 2022, influential people in several other (mostly Latin American) countries had toyed with plans to adopt Bitcoin as legal tender. Examples were Panama, Mexico and Paraguay. But only the Central African Republic took the step by mid-2022 (and canceled its policy a year later). Then BTC crashed. No doubt, the pitches of Bitcoin believers in these countries were shelved. But the tides have turned, it seems. There is something brewing.

Conclusion

The current tailwinds of a new bull market, more widespread Bitcoin knowledge and country that has already proven it’s possible, make it more likely that one or more countries will adopt BTC as legal tender and/or a treasury reserve asset in this bull market. Will it be Argentina? Maybe but Milei has such a big agenda and must fight so many battles, that he might shelf this one. Also, Argentina is quite a large country in terms of GDP (30 times higher than El Salvador’s). Bitcoin at this stage might still be too small an asset to be included.