Argentina’s aim to slow crypto helps spur black-market workarounds

Argentina’s thriving black markets could get a boost from the government’s latest effort to slow cryptocurrency adoption.

The country’s residents have long relied on workarounds to evade currency controls and find alternatives to their rapidly inflating peso.

Now, a May 4 notice has banned so-called payment service providers from letting customers buy, sell, or swap cryptocurrencies. The move comes one year after banks were barred from offering such services.

Crypto exchanges in Argentina believe they fall outside the scope of the notice. And yet, they face stiff competition.

“Crypto is an option” in developed regions like the US and Europe, Pablo Sabbatella, founder of Ether Argentina, told DL News. “In Argentina, it’s a necessity.”

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The government places a limit on the amount of pesos people can exchange for dollars each month, and provides an exchange rate that values dollars at far more than what they’re worth on the black market.

As a result, Argentines have long relied on the black market to buy dollars. In recent years, they have done the same for cryptocurrencies.

“That’s illegal, but that’s what 90% of people do here,” Sabbatella said. “So we are used to using the black market. And I think we’ll go back to it.”

‘Fear, uncertainty, and doubt’

Suffering from runaway inflation, Argentina has become a poster child for the real-world use of digital assets, placing 13th on Chainalysis’ global crypto adoption index last year.

Last week’s prohibition is part of a year-long attempt by the government to slow that adoption.

Argentine officials promised the International Monetary Fund they would “discourage the use of crypto-currencies with a view to preventing money laundering, informality and disintermediation” in a letter dated March 3, 2022.

Two months later, the country’s largest bank announced it will allow customers to buy and sell cryptocurrencies. Within days, Argentina’s central bank issued an order banning banks from offering cryptocurrency services.

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Last week, the central bank extended that prohibition to payment service providers, a relatively new breed of fintech companies that offer digital banking and payment services in fiat currencies.

The notice briefly set off a panic among crypto companies unsure whether they fell under its scope.

“The initial reaction was fear, uncertainty, and doubt around what was happening, because the communication from the central bank was not very clear,” Manuel Beaudroit, the founder of crypto wallet and prepaid debit card company Belo, told DL News. But “there’s a few signs this new regulation was intended to tackle mostly big players, so similar to a Venmo from Argentina … and other similar companies.”

Sebastián Serrano, CEO and co-founder of Ripio, another local crypto company, agrees.

“In practice, nothing changes for the current crypto brokers and apps,” he told DL News.

The ‘best business in Argentina’

Nevertheless, “the crypto ecosystem is on high alert,” according to attorney Mariano Davo.

“While this is a risky interpretation, it is in line with the text of the regulation,” he told DL News, referring to crypto companies’ belief they are, for the time being, safe. “Nonetheless, it cannot be ruled out that there may be an express prohibition in the future.”

That could spook a population that has come to rely on blockchain technology to escape runaway inflation, said Sabbatella. Above-board crypto companies have become popular, offering users yield on their deposits and cards that offer cash back on purchases.

After last week’s notice, “what people will say is, ‘We will not use local exchanges anymore, we will go back to the usual thing of buying crypto and dollars with cash,’” Sabbatella said.

“Being a black-market operator is one of the best businesses in Argentina. It’s very lucrative,” he added. “We are always doing some stupid thing with the economy. When you do something stupid, you get different ways to arbitrate it, so they always have a business.”