Bitcoin Learns To Tango: High Inflation In Argentina Sparks Interest In Digital Currency

The virtual currency known as bitcoin may be gaining popularity in Argentina, where citizens have been prohibited from exchanging their depreciating pesos for U.S. dollars.

Bitcoins, which have a finite supply like gold or silver and lack any sort of centralized regulation that can affect their value, offer Argentines an outlet to shield their savings from rising inflation.

The digital currency, however, is subject to volatile price swings due to its limited supply and speculation, which carries both great risks and potentially large financial gains for those who buy into it.

“Some Argentines are willing to take very risky investments and bet on this thing which feels almost like a Ponzi scheme because they feel their options locally are even more dangerous,” said Claudio Loser, a financial consultant at Centennial Group Latin America, Bloomberg reported.

Bitcoins are traded on several online exchanges and can be used to pay for any number of goods or services from businesses that accept them.

Last week, the value of individual bitcoins hit a high of $266 before plummeting to $105 in just a few hours. At present, the value continues to hover below $100.

Nevertheless, with inflation rising in Argentina at around 25 percent, bitcoin traders and businesses have seen an opportunity to expand into the country.

MercadoLibre, an online marketplace similar to eBay that operate throughout Latin America, including Argentina, has begun allowing transactions to be conducted using bitcoins.

According to TradeHill, a San Francisco-based bitcoin exchange, demand for bitcoins in Argentina is the largest in the region, with transactions in the currency more than doubling since February.

“It provides a way to move money out of the country and avoid capital controls,” TradeHill’s CEO Jered Kenna told Bloomberg.

Since last July, the Argentine government, in an attempt to prevent flight from the peso, has banned its country’s citizens from buying U.S. dollars except for travel, and any such purchases require approval from the federal tax agency.

Still, usage of bitcoins is far from being commonplace in Argentina, representing less than 1 percent of the country’s $1 billion in annual foreign exchange transactions.