The trend of investing into alternative assets is on the rise and Bitcoin seems to be benefiting from the current climate of weakening currencies. While the cryptocurrency is performing extremely well against developed market currencies such as the UK Sterling (68.5%), US Dollar (66.5%) and the Euro (57.3%), Latin American currencies have struggled the most in relative terms for a variety of reasons.
When we look at the largest Latin American economy, Brazil, we can see that Bitcoin has enjoyed considerable gains against the Brazilian real since the start of the year. The cryptocurrency has gained 128.4% against the real, while the currency has devalued by over 30% against the US dollar in the same time period. Trading volumes in Bitcoin have increased steadily since the beginning of the year and the trend may continue if the currency remains volatile in the short-to-medium term.
The Argentinian peso has also performed poorly as Bitcoin increased by 103.5% since the end of 2019 and 169% over a two-and-a-half year period. Argentina’s economic woes – weakening currency, coronavirus spread, high inflation and GDP falls – have all provided the catalyst for investors to move away from the currency and seek alternative investments, primarily in Bitcoin. The government has also looked at methods of teaching beginners about trading cryptocurrencies, which will only increase the amount of interest in Bitcoin.
The third significant Latin American currency that hasn’t done well versus the cryptocurrency is the Venezuelan bolivar. Bitcoin has surged 92.5% against the currency. The Venezuelan economy has endured a volatile situation for years and shares the same (and perhaps to a more acute degree) problems with Argentina with hyperinflation and a weakening currency against the US Dollar. In fact, Venezuela has recently signed an agreement that will allow its “petro” cryptocurrency to be used in its tax system.
The rise in demand for cryptocurrencies is bound to increase further as uncertainties in the global economy remain. Capital controls, significant devaluations in currencies, as well as larger disparities between official and black market rates, will only increase demand for the likes of Bitcoin in Latin American economies at the expense of their local currencies.