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US Awaits Recession While Bitcoin Becomes the Last Resort

What happened this week?

The trade-war worries affected the financial markets on Wednesday, while stocks and commodities tumbled in Europe and the United States. Equities declined more than 1% in the United States after the S&P 500 Index fell 2.93%, the NASDAQ shed 3%, and the Dow Jones tumbled over 3%.

Investors shifted towards the safety of government bonds. Yields on 10-year US treasury bonds inverted against the 2-year yield for the first time since 2007, prior to the Great Recession.

Source: Commercial Loan Direct

30-year treasuries dropped below 2% for the first time, signaling a recession as a sign of how nervous investors are about the immediate outlook for the economy. When shorter-term rates are higher than the longer-term bond yields, an inverted yield curve is formed. The inverted yield curve is a reflection of the investors’ view of the US economy. Treasury yield curve inversions often indicate that the US recessions and bear markets are on their way.

Tom Essaye, the founder of The Sevens Report, noted to clients:

“Historically speaking, the inversion of that benchmark yield curve measure means that we now must expect a recession anywhere from six-to-18 months from today.”

While investors have been continually investing in bonds despite being promised a tiny rate in return, long-term yields are negative in Japan and Germany. The global economy has mirrored the fears of a slump in the United States, notably given the trade war with China.

Bitcoin becoming the last resort in Argentina and Hong Kong

Turmoil in Argentina and Hong Kong encouraged local investors to pay a premium for Bitcoin. As the peso took a dive due to election uncertainty, Bitcoin was trading at a 10% surge on the peer-to-peer platform, LocalBitcoins.com compared to international cryptocurrency exchanges.

Bitcoin was trading at a 4% premium in Hong Kong as anti-government protestors have been clashing with the riot police. Since the protests began in June, the Hong Kong stock market has been seeing losses of up to 15%.

Rayne Steinberg, CEO of Los Angeles based crypto hedge fund, Arca noted:

“Bitcoin is becoming the asset of last resort in areas of extreme currency devaluation and political uncertainty. 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 price of Bitcoin was expected at a surge due to the inverted yield curve along with the premiums in Argentina and Hong Kong. However, this was not observed in the crypto market. A possible reason explained by Igor Chugunov, CEO of Credits Blockchain, was that the Chinese found crypto to be a safe haven but have since been leaving since trade tensions have loosened.

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Argentina Adopts Blockchain Technology for Traceability in the Citrus Industry

The citrus supply chain is one of the most fragmented and complex of all supply chains. The production is found all over the world, thus making several intermediaries and producers difficult to identify and trace.

This brings risk and uncertainty to all stakeholders in the production chain. Since the production is so fragmented and siloed, counterfeiting and fraud are some real challenges facing the industry.

This, in turn, makes the entire citrus supply chain unfair for some stakeholders.

Therefore, every supply chain needs blockchain, and several business enterprises are catching on. Leading players like Maersk, Anheuser-Busch InBev, CMA CGM, and others are already looking for ways to obtain value from blockchain technology.

The Argentine Citrus Federation (Federcitrus) incorporated blockchain into the agency’s informatics system to provide traceability of fruit export products.

How can blockchain help?

Argentina is one of the first nations to apply blockchain to trace fresh fruits. Federcitrus’ president Jose Carbonel mentioned that such a decision “adds value to the product.” He also said that the move to adopt blockchain adheres to the protocol established between Argentina and importing countries.

Furthermore, the SENASA law that dictates the regulations for the transport of fresh citrus fruits is following the new operative process.

According to Federcitrus, Argentina views blockchain as a way to position itself as a leader in the citrus industry.

Blockchain is applied to timecode interactions between encoded information. therefore, it provides an oversight system for fresh citrus product exports, and most of these products go to the United States.

Moreover, the system ensures that no modifications are made to tracing throughout the certification process. Also, it secures transactions throughout the exporting process.

By deploying blockchain technology in its operations, Argentina’s SENASA (National Service of Agri-Food Health and Quality) hopes to make the tracing process more secure. SENASA sees blockchain as a solution, which provides both transparency and efficiency.

Benefits of blockchain for citrus traceability

How can blockchain technology help the citrus supply chain with traceability?

Generally, a centralized database already helps with solving fragmentation and complexity issues in a supply chain. However, only a decentralized database that is immutable could help solve counterfeiting and fraud issues as its data cannot be manipulated.

The application of blockchain can accurately trace everything within the citrus supply chain while limiting the options to commit fraud. The technology also can easily regulate who gets access to information about the products and further expand the information on the network.

Takeaway

Blockchain technology has the potential to transform the citrus industry. However, it can only work efficiently if everyone participates. If food products are to be traceable from farm to fork, then all parties along the supply chain would need to adopt the technology. But this is not something that will happen overnight.

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Argentina’s Central Bank Set to Prove Non-Crypto Use Cases of Blockchain Technology with its New Clearing System

The Central Bank of Argentina (BCRA) is now looking to test a blockchain-based clearing system to be used by the country’s major financial institutions. The aim of the blockchain clearing system is to provide efficiencies for fiat payments and enable them to be more reliable and to provide end-to-end traceability.

A proof-of-concept for the permissioned blockchain network has been created, based on RSK Smart Contract network, along with the major commercial banks in Argentina, including Santander and BBVA, according to a blockchain developer IOV Labs. One of the major goals of the proof-of-concept was to show that there are other use cases for blockchain such as smart contracts, other than just cryptocurrencies.

The clearing system is currently in its testing phase, while Diego Zaldivar, the CEO of IOV Labs emphasized the importance of using technology to optimize processes and provide better services to Argentinian citizens during these global circumstances. Banks, clearinghouses, BCRA, and other financial institutions will be participating in the network.

Although the central bank is willing to look into blockchain as a technology to be incorporated into its clearing system, the BCRA has issued a statement in 2014 to citizens to remind them that digital assets such as Bitcoin were not a form of legal tender.

Other central banks have been propelling towards a blockchain-based currency to be used in the nation.

Bank of France launches program of experiments testing out CBDC

The Bank of France (Banque de France) has launched a program of experiments testing out a potential central bank digital currency (CBDC) aimed for interbank settlements. Potential participants are being invited to submit their applications, as the Bank of France is calling for applications to experiment with the use of a digital euro.

The French central bank is open to test out new technology, although it did not specify using blockchain. The three main objectives of the CBDC experiment includes identifying benefits, analyzing potential risks, and modeling as CBDC-based interbank settlement.

Sweden’s Sveriges Riksbank tests out CBDC

Sweden’s Sveriges Riksbank announced that it had started testing an e-krona, taking one step closer to the release of a central bank digital currency.

The e-krona aims to simulate everyday banking activities, including payments, deposits, and withdrawals from a digital wallet on a mobile phone. The pilot testing program has been scheduled to operate for one year, until February 2021 and will be running on blockchain.

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Argentina Orders Stricter Monitoring on Local Crypto Transactions Amid Battling the Flight of Devalued Pesos

Argentina’s Financial Information Unit (FIU) has ordered stricter controls and monitoring into cryptocurrency transactions in the country to eradicate money laundering and other illicit activities.

Argentine newspaper El Cronista reported that the FIU, a government agency that is responsible for enforcing anti-money laundering laws and compliance, is looking to tighten its controls on cryptocurrency trading.

President of the Financial Information Unit, Carlos Alberto Cruz said, “In recent times, we have seen an increase in operations carried out through virtual assets.” He added that these transactions could be “carried out by people who intend to circumvent international standards and avoid the anti-money laundering system.”

The announcement by the FIU comes at a time when Argentine citizens have been swapping out pesos for more stable foreign currencies, and “parallel exchange markets” have been observed by the government.

This observation has been backed by Franco Amati, the founder of the Buenos Aires Bitcoin Center, as he explained that the Argentine government is clamping down on its citizens from buying Bitcoin with Argentine pesos and converting them to Bitcoins, then to US dollars on foreign exchanges.

Lack of confidence on the Argentine peso

Argentina has been one of the earliest adopters of cryptocurrency in South America, in an effort to go against inflation and overcome the prohibition of purchasing and transferring foreign currency abroad. Although cryptocurrencies have always been deemed legal in Argentina, the country formally banned consumers from purchasing Bitcoin (BTC) and other cryptocurrencies using credits since November 2019.

The high adoption of cryptocurrency among the Argentine citizens could be linked to the high volatility of the peso, the value of the peso against the US dollar has dropped by 85 percent in the past five years. Argentine citizens have had little confidence in their currency, therefore converting their pesos into Bitcoins then the US dollar.

Argentina’s central bank looks to test a blockchain clearing system

The Central Bank of Argentina (BCRA) is looking to test a blockchain-based clearing system to be used by the country’s major financial institutions. The aim of the blockchain clearing system is to provide efficiencies for fiat payments and enable them to be more reliable and to provide end-to-end traceability.

Image via Shutterstock

Bitcoin Mining Are Thriving with Cheap Electricity in Argentina

While the cryptocurrency market experiences a bloodbath globally recently, Bitcoin miners in Argentina thrive as they take advantage of complex energy policies.

In Argentina, Miners are thriving due to serval factors like rampant inflation, energy subsidies, and currency controls. In other words, the rise of capital controls and ultra-low utility rates are helping crypto miners to make profits in the country.

Cryptocurrencies have long been considered a way for locals to hedge against cyclical economic crises in Argentina, including repeat currency devaluations, hyperinflation, defaults, and a three-year recession worsened by the COVID-19 pandemic.

Bitcoin miners are reaping benefits from the nation’s longstanding residential electricity subsidies. Besides cheap electricity, the returns of foreign exchange controls have given local citizens who are banned from purchasing dollars even more incentives to conduct crypto mining activities.

In Argentina, consumer electricity bills are only around 2% to 3% of an average monthly income, compared to about twice that in other Latin American markets such as Chile, Colombia, or Brazil.

“The crypto that miners generate is typically sold at the parallel exchange rate, but the energy is paid for at a subsidized rate. At the moment, revenues are very high,” crypto expert Nicolás Bourbon said.

As a result, international mining companies are seeing huge opportunities in Argentina. Canada’s Bitfarms mining firm plans to establish what is considered to be the largest mining operations in South America, a part of a flourishing cryptocurrency business region in Argentina.

“We were looking for places that have overbuilt their electrical generation systems. Economic activity in Argentina is down, and power is not being fully utilized. So, it was a win-win situation,” Bitfarms President Geoffrey Morphy stated in an interview.

Despite Bitcoin’s volatility, mining in Argentina will nearly remain profitable for miners as long as the government is subsidizing the electricity bill.

“Miners know the subsidies are ridiculous. They simply take advantage of it,” Bourbon said.

However, families which rushing to purchase mining equipment to mine Bitcoin might not make it because the upfront costs can be prohibitive than some expect. Even if energy is cheap in Argentina, not everyone is going to see profit overnights. Mining power is considered a key factor in calculating the benefits of mining in the country.

Locals Riding into Crypto Craze

Argentina’s deflating currency, high inflation, economic downturn, and a shortage of US dollars to invest in are factors attributed to influence locals to invest in cryptocurrencies. Argentines have been putting their money into Bitcoin, Ether, Tether and Dai, as they consider these virtual currencies a haven for them to hedge from economic crises.

Currently, there are an estimated two million cryptocurrency trading accounts in the nation of 45 million people.

Recent research shows that the local unemployment rate up to 11%, and poverty haunts two in five people.

Cryptocurrencies, therefore, provide relief from low-interest rates and a government-imposed limit on greenback purchases of $200 per month in a population accustomed to dollarizing savings.

Argentina Considers Launching First Crypto Futures-Backed ETF In Latin America

Matba Rofex, the largest futures and options exchange in Argentina, seeks to be the first Latin American exchange to launch a regulated Bitcoin future exchange-traded fund (ETF).

According to Bloomberg media on Monday, November 1, Matba Rofex is seeking approval from the National Securities Commission of Argentine to launch a cash-settled Bitcoin future backed with ETF.

As per Bloomberg, Matba Rofex disclosed last week that it filed a proposal to Argentina’s securities regulator to launch Bitcoin futures in Argentina pesos.

The talks, which started a few months ago, are in progress, but the regulator has not yet determined the matter.

Ismael Caram, the deputy general manager of financial markets at Matba Rofex, talked about the development and said:

“We want to attract those clients from the regulated market that cannot operate on unregulated exchanges. We perceive an incipient but continuous demand from clients, who want to add exposure in crypto assets.”

Meanwhile, a spokeswoman, who is familiar with the matter at the National Securities Commission of Argentine, said that the regulator is considering the proposal, but it is not a priority request, and further stated that the proposal will also need to be evaluated by the Ministry of Economy of Argentina and the country’s Central Bank.

Matba Rofex plans to operate the new Bitcoin futures ETF with a cash settlement on electronic platforms, just like other financial derivatives.

The Bitcoin futures will require higher guarantees and lower open positions than others because they are considered to be riskier than standard derivatives. The proposal states that investors are expected to deposit a guarantee of about 30% to 40% of the value of the contract.

The underlying assets for the new futures will be the Bitcoin price index. Launched in April, the index publishes the asset’s price in real-time in Argentine pesos, based on 12 different local cryptocurrency exchanges.

Caram revealed that Matba Rofex is also considering working on futures of other cryptocurrencies like Ethereum, or new instruments like crypto exchange-traded funds.

If the regulator awards approval, then Matba Rofex will be the first exchange to launch regulated Bitcoin futures in Argentina. However, citizens are already accessing similar products via unregulated exchanges.

Crypto Booming in Argentina

Considering the government’s positive stance towards cryptocurrencies in Argentina, Matba Rofex might get the approval it requires.

Cryptocurrencies are not prohibited in the country and therefore are legal. However, the government issued regulations concerning cryptocurrencies related to taxation and the prevention of financial terrorism and money laundering.

In August, Argentina’s president, Alberto Fernandez, stated in an interview that he is open to the adoption of cryptocurrencies as legal tender. He further stated there are big discussions around the use and value of crypto assets not only in Argentina but also all over the world. However, he acknowledged that matters should be treated carefully and admitted that he had limited knowledge in the subject of crypto assets.

According to Chainalysis blockchain data analytics firm, Argentina is one of the nine nations with the highest adoption of crypto assets. About 60% of Argentina’s citizens invest in cryptocurrencies to protect their savings against inflation running about 50% annually and recurring currency crises facing the country.

Argentina Enacts New Tax Policy for Crypto Transactions

The Argentinian government has had a change of mind for making the country a tax haven for digital currencies as all individual transactions involving the nascent asset class will now be subjected to taxation.

The new policy was reportedly formulated to redefine the leverage given to third-party payment service providers operating in the country.

As per the reports, individual crypto transactions, as well as debit and credits made through a bank account, will now be subjected to a 0.6% effective immediately.

“The exemptions provided for in this decree and in other regulations of a similar nature will not be applicable in those cases in which the movements of funds are linked to the purchase, sale, exchange, intermediation and/or any other operation on crypto assets, cryptocurrencies, digital coins, or similar instruments, in the terms defined by the applicable regulations,” the government update said.

While Argentina is renowned for taxing crypto gains as far back as 2017, its new stance will now consider digital currency transactions alongside those involving cash. The new law will likely aid the government in raising more funds as a number of Argentina citizens are turning to cryptocurrencies amidst concurrent fiat currency devaluation.

Currently, the topic of crypto taxations is becoming a polarizing one in various countries. While the Joe Biden administration is banking on crypto taxations to fund the recently signed infrastructure bill, Asian countries like South Korea have finalized plans to start imposing a 20% capital gains tax on digital currencies by Q1 2022.

Digital currencies are designed to foster anonymous transactions between two parties but in a decentralized manner. In a bid to capture and tax the vast number of funds being transacted on a daily basis, federal tax regulators are beginning to employ data compliance tools to monitor transactions on exchanges and brokerages.

Platforms that are engaged in crypto transactions in various jurisdictions including Norway, the United States, and South Korea are also obligated to submit user’s transactions for appropriate taxation by the relevant authorities.

Argentinian Seek Shelter in Crypto, while Local Inflation Surges over 50%

Annual inflation rates have been going through the roof in Argentina by surging more than 50%. Argentinians, therefore, have resorted to transacting in cryptocurrencies to tame runaway prices.

Lemon Cash, a crypto exchange, is aiding in these efforts by offering Bitcoin reward cards that were first rolled out in November, according to Bloomberg.

Franco Bianchi, the chief marketing officer at Lemon Cash, stated:

“Latin America is a good place for these services. Several of the countries have unstable economies and devalued currencies, and the people seek access to cryptocurrencies as a refuge.”

The demand for the Visa cards, which convert the stipulated cryptocurrency to pesos when making payments, is so high that Lemon Cash intends to increase issuance to three million this year.

Initially, the crypto exchange had rolled out 100,000 cards, with each purchase guaranteeing the cardholder a 2% cashback in Bitcoin.

The report noted:

“While the cards have been seen as a marketing tool elsewhere, they’re being used in the nation to help temper the impact of surging prices. Argentines fear and seek cover against an accelerating inflation rate that is already the fourth highest in the world, after Venezuela, Lebanon and Zimbabwe.”

The inflation rate on Argentinian soil does not seem to be slowing down because economists speculate it will hit 55% this year from the present 50.7%.

The issuance of crypto cards is in high gear in the region, with Ripio, a digital wallet provider, having at least three million users, mainly in Brazil and Argentina.

Therefore, crypto usage is speculated to continue rising in Argentina because cryptocurrency is deemed a hedge against a cyclical economic crisis that includes hyperinflation, recession, and repeated currency devaluations.

Meanwhile, Bitcoin miners in Argentina are thriving because of ultra-low utility rates and a surge in capital controls.

Argentinian Private Bank Banco Galicia Opens Cryptos Trading Service

Banco Galicia (NASDAQ: GGAL), Argentina’s largest private bank by market share, has announced that it will allow its users to buy cryptocurrencies such as bitcoin on its mobile app.

The bank has added a new feature by establishing a partnership with a Lirium-based cryptocurrency infrastructure company Lirium, that enables banks and digital wallets to buy, sell, send and receive (BTC), ether (ETH), USDC, and XRP.

The company also said it will continue to expand the cryptocurrencies and offer custody capabilities while hoping to roll out the service to all customers by mid-May.

Currently, Banco Galicia only allows users the ability to buy and sell cryptocurrencies, but not withdraw or send cryptocurrencies, according to Lirium COO Martin Kopacz.

Annual inflation rates have been going through the roof in Argentina by surging more than 50%. Argentinians, therefore, have resorted to transacting in cryptocurrencies to tame runaway prices.

Crypto usage is speculated to continue rising in Argentina because cryptocurrency is deemed a hedge against a cyclical economic crisis that includes hyperinflation, recession, and repeated currency devaluations.

Argentina Halts Crypto Operations Undertaken by Financial Institutions

Days after Argentina’s largest private bank Banco Galicia opened crypto trading services, the nation’s central bank cracked the whip by banning financial institutions from carrying out crypto transactions.

The central bank noted that its decision to stop crypto transactions in the entire financial sector was reached to “mitigate the risks” involved when using digital assets, such as money laundering, cyberattacks, and high volatility.

Financial institutions will only be allowed to finance investment, consumption of goods and services, and production. Argentinians, therefore, will lose opportunities to undertake crypto operations through banks as the blanket ban on unregulated digital assets takes effect.

Recently, Banco Galicia rolled out the new service based on growing demand. It was to enable users to buy, send, and receive Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and USD Coin (USDC).

To tame runaway inflation, Argentinians have been seeking shelter in crypto.

This can be illustrated by the fact that Argentina is among the world’s top 10 nations with the highest crypto adoption rates. Therefore, the latest development is a big blow.

With annual inflation rates surging by more than 50%, crypto exchange Lemon Cash had stipulated that it would roll out three million Visa crypto cards earlier this year.

Franco Bianchi, the chief marketing officer at Lemon Cash, said:

“Latin America is a good place for these services. Several of the countries have unstable economies and devalued currencies, and the people seek access to cryptocurrencies as a refuge.”

Economists speculate that the inflation rate on Argentinian soil will hit 55% this year from the current 50.7%.

Therefore, the crypto ban will undermine Argentinians because they were using cryptocurrencies as hedges against a cyclical economic crisis that includes a recession, hyperinflation, and repeated currency devaluations.