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Argentines Turn to 'Crypto Caves' in Attempt to Find Refuge from Ravaging Inflation

Escaping from the inflation of Argentine peso through crypto caves

In the face of soaring inflation rates that continue to undermine the Argentine peso, locals are turning to innovative solutions to preserve their wealth. With the national inflation rate reaching a staggering 211.4% in 2023, a 32-year peak according to the National Institute of Statistics and Censuses, Argentines are increasingly relying on 'crypto caves'—secret peer-to-peer crypto exchanges. 

These underground networks allow individuals to purchase United States dollar stablecoins, offering a semblance of stability amidst the economic turmoil. Unlike traditional exchanges, these clandestine operations provide a gateway to digital dollars, circumventing the country's stringent currency controls and the triple-digit inflation devouring local financial security.

The rise of 'crypto caves': a closer look

As Argentines grapple with restrictive financial policies, 'crypto caves' have emerged as beacons of financial autonomy, offering an alternative to the government's tight grip on currency exchanges. Guillermo Escudero, CryptoMarket’s strategic alliances manager, describes these venues as "non-visible places" where individuals can covertly exchange their fiat money for cryptocurrencies, predominantly USDT

Escudero revealed:

"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," 

These secretive exchanges offer significantly better rates than the official exchange, addressing the Argentines' need to safeguard their assets against the peso's rapid devaluation. With local banks barred from officially accepting U.S. dollars, many have turned to crypto wallets to store dollar-pegged stablecoins like Tether (USDT), valued at a constant $1.00. This shift towards 'digital dollars' provides a semblance of financial security, allowing Argentines to sidestep the economic instability that has long plagued their nation.

From 'financial caves' to cryptocurrency: a transition

The concept of 'crypto caves' is not new to Argentina; it has its roots in the "financial caves" that proliferated during the 1980s when the country first imposed currency controls. These entities, originally public money exchange venues, transitioned into clandestine operations to circumvent governmental restrictions. This historical backdrop set the stage for the current 'crypto caves,' where Argentines seek refuge from the economic maelstrom.

The shift from traditional to digital currency exchanges signifies a broader move towards financial sovereignty. The 'blue dollar'—Argentina's informal dollar rate—currently exchanges at 1,115 pesos for $1, starkly contrasting the official rate which has spiraled from 365 to 829 pesos to the dollar since Javier Milei's presidency began. This disparity underscores the allure of 'crypto caves,' offering more favorable exchange rates and a hedge against the peso's depreciation.

Rich Kane, reflecting on his experience in Argentina from 2014 to 2017, highlights the transformative potential of these underground exchanges: 

"I lived in Argentina where I had to go to a ‘cave’ each month to illegally sell my pesos to buy USD, just so I could guarantee a flight home each year. Anyone who doesn’t understand why crypto/defi is revolutionary is living under a rock."

The preference for stablecoins over Bitcoin

Residents are notably veering away from Bitcoin, despite its global popularity as a cryptocurrency. The preference leans heavily towards U.S. dollar stablecoins, such as Tether (USDT), due to their perceived stability and closer alignment with the U.S. dollar's value. This trend is driven by the desire to mitigate the risks associated with the Argentine peso's inflation and Bitcoin's own volatility.

CryptoMarket CEO María Fernanda Juppet conveyed that while Argentina's move to legalize Bitcoin as a payment method marks progress, the high-inflation environment makes it impractical for business contracts. 

"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," 

Argentines' preference for USDT over Bitcoin underscores a strategic approach to cryptocurrency use, prioritizing stability over potential high returns.

The future of crypto caves and currency controls

As Argentina embarks on a new chapter under the leadership of President Javier Milei, expectations are high for a shift in economic policies, particularly regarding currency controls. Guillermo Escudero anticipates that the stringent regulations that gave rise to the 'crypto caves' might be relaxed, potentially reducing the demand for these underground exchanges. 

Escudero stated, highlighting a possible future where Argentines might not need to seek alternatives for financial transactions:

"Currency controls are 'widely expected' to be wiped under Milei’s leadership, which could drive down demand for crypto caves as access to official channels becomes available," 

However, Escudero also notes the persistent challenge of high tax pressure in Argentina, suggesting that a 'black market' for currency exchange could continue to thrive, albeit under different conditions. 

"But since the tax pressure is so high in Argentina, we will continue to have a 'black market' that has a preference to operate under the radar of the comptroller entities," 

He added, indicating that while the form may change, the need for such services may persist.

The presence of crypto caves in other countries facing similar economic constraints—like Cuba, Venezuela, Iran, and several African nations—underscores the global relevance of this phenomenon.