We have seen a bunch of surprise election results in the last few years. Argentina’s recent primary elections were in this sense, no different.
Once again, polls got it wrong. Way wrong. The current party lost by a much higher margin than expected.
After hearing the news, the Argentinean stock market collapsed by close to 40%, the peso devalued by a whopping 30% against the US dollar.
But in the middle of this, something interesting was going on in the crypto market. This from Bloomberg:
‘In Argentina, where the peso plunged on election uncertainty, Bitcoin was recently trading for as much as $12,000 on LocalBitcoins.com, a peer-to-peer platform, or 10% higher than on many international crypto exchanges. The token was trading at about a 4% premium in Hong Kong, where continued anti-government protests are raising fears of retaliation…
‘Bitcoin is becoming the asset of last resort in areas of extreme currency devaluation and political uncertainty,” said Rayne Steinberg, chief executive officer at Los Angeles-based crypto hedge fund Arca. “In the last week alone, Bitcoin is up approximately 50% against the Argentine peso and trading at a significant premium on local exchanges. And they are not alone, joining the ranks of Venezuela, Hong Kong and Turkey who have also experienced similar shocks.”’
The thing to note here is that Argentineans usually flock towards the US dollar at the first sign of trouble. And while this time it was no different, it looks like bitcoin was also sparking some interest.
As you can see below, volume for bitcoin traded in Argentinean pesos spiked together with price after the election.
Admittedly, I spoke to a few friends living in Argentina and while there is some interest in cryptos, there still isn’t a whole lot of awareness…yet.
But, bitcoin is starting to once again gain some attention.
We are seeing a lot of turmoil in markets around the world. The US-China trade war is escalating.
There is also more instability. We are moving away from globalisation towards more protectionism.
And some people are going into bitcoin when there is financial trouble.
But there is something else that could be pushing people into bitcoin: negative interest rates.
Negative rates act kind of like a tax on your wealth. Having savings in the bank will lose you money instead of paying your interest.
The idea of negative rates is that it will increase spending and lending by banks. This will then spur the economy and create inflation.
But when you get down to it, negative interest rates simply don’t make any sense.
The major central banks in developed countries are either already in negative rates or moving towards them.
We now have a whopping US$17 trillion in negative yielding debt. This is increasing fast as that amount has tripled since October last year.
Low and negative interest rates push asset prices up and people into riskier assets.
It forces people to look for alternatives, things outside the financial system that will hold their value. I.e., things that are not easily…erm…printed.
It is why the price of gold is surging…
It’s probably why the demand for cash and the amount of US$100 dollar bills in circulation is rising. At a time of negative rates, households will stash cash at home instead of keeping it in the bank.
And it’s why negative rates — alongside with financial turmoil — could push more people into bitcoin.
If you are keen to get into the crypto space but are not sure how, editor Sam Volkering has developed a step by step guide. You can check out all the details here.
If things continue the way they’re going, bitcoin could very well emerge as one of the alternatives against negative interest rates.
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