Citizens of Argentina are using black market cryptocurrency exchanges, which the locals call “crypto caves,” to purchase United States dollar-based stablecoins in a bid to get around currency controls and the hyperinflated Argentine peso.
According to CryptoMarket’s strategic alliances manager Guillermo Escudero, these crypto-caves are peer-to-peer exchanges operating in secret and hidden in places that aren’t immediately visible to the average person.
Locals can access a far better exchange rate than the official one by using crypto caves. Since local banks cannot officially accept U.S. dollars, crypto wallets have become popular for storing dollar-pegged stablecoins like Tether (USDT).
“Financial caves” initially evolved into crypto caves—entities that formerly functioned as public money exchanges but went underground when Argentina implemented currency controls in the 1980s.
This development gave rise to the “blue dollar”— Argentina’s unofficial and informal dollar rate — which currently grants locals 1,115 pesos for $1.
Since economist Javier Milei assumed the presidency, the official rate, which stood around 365 pesos to the dollar in December 2023, has surged to 829 pesos.
According to the latest figures from Argentina’s statistics agency, the National Institute of Statistics and Censuses, the country’s inflation rate reached a 32-year high of 211.4 per cent in 2023.
Authorities have investigated and even raided some crypto caves, as mentioned by Escudero. However, locals do not perceive crypto caves negatively, as they represent one of the few avenues where they can trade their inflation-ridden pesos.
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Argentina’s fortunes could improve under Milei
Escudero pointed out that under Milei’s leadership, there is widespread anticipation for the removal of currency controls, potentially reducing the demand for crypto caves as access to official channels opens up. Due to the high tax pressure in Argentina a ‘black market’ will persist, preferring to operate beyond the oversight of regulatory entities.
Crypto caves also operate in Cuba, Venezuela, Iran, and several African countries.
Milei’s leadership may result in positive changes, especially if the country’s recent attempts to open up talks with the United States bear fruit.
The removal of currency controls could present both opportunities and challenges for many industries in Argentina.
For example, Argentina’s lithium mining sector has become quite lucrative and an increase in foreign direct investment would have a directly beneficial effect on the nation’s economy in the not-so-distant future.
The nation produces the battery metal from its rich underground brine resources. These come primarily in the northern provinces of Jujuy, Catamarca, and Salta.
Representatives from the Argentine Chamber of Mining Companies met with U.S. Ambassador Brian A. Nichols, a host of lithium companies, and other members of the American Embassy last week. They talked about the state of the mining industry and explored cooperation opportunities.
Officials from the newly merged Arcadium Lithium plc (NYSE: ALTM) (ASX: LTM), lithium giant Albemarle Corporation (NYSE: ALB), the junior Lake Resources NL (ASX: LKE) (OTC: LLKKF), and the lithium extraction systems provider Lilac Solutions attended the meeting.
Analysts predict immense growth in Argentina’s lithium industry in the coming years. The current low price of the commodity is not expected to have any impact on that growth.
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Reduced currency controls have significant downstream effects
The easing of currency controls and other market reforms could also have positive downstream effects for junior miners as well. Companies that could benefit include NOA Lithium Brines Inc. (TSXV: NOAL), Lithium South Development Corporation (TSXV: LIS) (OTCQB: LISMF) (Frankfurt: OGPQ) and Portofino Resources Inc. (TSX-V: POR) (OTCQB: PFFOF).
A relaxation of controls could lead to increased access to international capital markets. These miners may find it easier to attract investment from foreign sources, which were previously deterred by restrictions on currency conversion and fund repatriation.
This improved access to capital could lead to greater financial stability. This would enable junior lithium miners to fund exploration, development, and production activities, potentially fostering increased output and growth.
Lithium South Development Corporation is a sponsor of Mugglehead news coverage
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