In Argentina, scandal rattles faith in crypto

• Argentina crypto coin crash undermines trust
• Crypto used as hedge against inflation, financial turmoil
• Crypto enthusiasts see opportunity to educate new investors

BUENOS AIRES - Argentina's crypto economy is reeling from the collapse of a cryptocurrency that has raised questions about involvement of the country's president and concerns that foreign investors will be scared away from investing in the South American nation.

The crypto crisis marks a dramatic turn of fortune by striking a reputational blow to what has been long regarded as one of Latin America's most significant blockchain communities.

Many Argentines, among the world's top cryptocurrency adopters on a proportional basis, in recent years turned to Bitcoin and stablecoins as a hedge against economic instability and a weakening peso.

The positive scenario began to unravel with an eyebrow-raising post on "X" by President Javier Milei to his nearly 4 million followers, touting an unusual investment in a meme coin, on February 14.

A meme coin is a wildly speculative type of cryptocurrency, the price of which is largely fueled by social media buzz and celebrity endorsements, and it can be rife with insider trading practices.

The libertarian Milei said the little-known crypto coin $LIBRA would help reverse Argentina's decades-long spiral into hyperinflation, boost foreign investment and revive the economy.

But the hype quickly turned to havoc.

The price of $LIBRA, sparked by a wave of early investors who rushed in after Milei's post, collapsed within hours.

Scam accusations flooded social media, while Milei deleted his post and denied having any link to the cryptocurrency.

An Argentine judge was assigned three days later to investigate Milei's role.

Shockwaves triggered by the $LIBRA collapse spread out among a host of cryptocurrencies that had been considered a means to escape a local currency battered by inflation.

They offer access to an asset not controlled by the government that can generate a yield and serve as a tool for international payments, experts said.

"Unfortunately, now people talk about Bitcoin and crypto as if it were all the same thing; they lump everything together," says Rodolfo Andragnes, co-founder of Bitcoin Argentina, a non-profit organization.

He called Bitcoin "an incredible asset that came to solve many of the limitations of our traditional financial system."

"But everything that happened sets back what we've been building. For us, it's back to square one," he said.

Crypto hotbed

Before the $LIBRA crisis, Argentina's crypto scene was sizzling.

Plagued by triple-digit inflation, constant currency crises and a minuscule banking system that leaves much of the population behind, the country became prime territory for cryptocurrencies to flourish in the midst of economic instability.

According to U.S.-based Coinbase, one of the world's top cryptocurrency exchanges, Argentina is a hotbed for digital asset adoption. Some five million people — out of a total population of 45 million — use digital assets daily.

Users regard the cryptocurrencies as a workaround to access often restricted U.S. dollars, the country's go-to safe haven amid chronic financial instability, according to experts.

In Buenos Aires, the best exchange rate for dollars is often found in shady, windowless stores called "cuevas," a network of cash-only, informal markets.

By comparison, cryptocurrencies, particularly dollar-pegged stablecoins, provide a faster and more secure way for Argentines to escape the peso without having to carry wads of cash around the capital city.

"For many Argentinians, crypto isn't just an investment; it's a necessity for regaining control over their financial futures," Fabio Plein, director for the Americas at Coinbase, said in a statement.

Also, many Argentines use crypto to avoid taxes, as the transfers often go under the radar of local authorities. Last year, Milei's government launched a wide-ranging tax amnesty that included savings in crypto.

Now, industry experts fear the biggest impact of the $LIBRA scandal will likely be one of reputation, discouraging potential crypto investors and making newcomers hesitant.

Some investors have reacted on social media in anger, saying they were scammed by the president, and some critics have called for the start of impeachment proceedings.

Milei's supporters defend him as a victim of politically motivated attacks.

"It's truly a disappointment," said Guillermo Narvaja, chief technology officer at blockchain-based insurer Ensuro. "I want to convince people that you can do insurance on the blockchain, that it's something good and safe, but now I constantly have to explain that no, we're not a scam.

"Now we have to work twice as hard to overcome the reputational damage," he said.

Pablo Sabbatella, an Argentine security researcher who leads the crypto academy Defy Education for early adopters, said he has received queries about the risks of crypto investments following the $LIBRA scandal.

He said memecoins are highly speculative and "don't create any value."

"Even compared to a casino, where one may have a few chances of actually winning, with meme coins you don't have that chance because everything is rigged," he said. "It' a fixed game from the very beginning."

Educational opportunity

Despite the turmoil, many in the industry remain hopeful that Argentines will see potential benefits in digital assets like affordable cross-border transactions, access to U.S. dollar-pegged cryptos for the unbanked and as a hedge against inflation.

At Lemon — one of Argentina's largest crypto firms with more than 600,000 Bitcoin holders across several South American markets — transaction volumes have held steady.

Meanwhile, demand for educational content online has surged, suggesting potential investors are keen to understand crypto investments beyond the headlines.

"Crypto is on everyone's lips right now," said Maximiliano Raimondi, chief financial officer at Lemon.

"This is actually an opportunity to just keep educating people on the subject," he said.

(Reporting by David Faliba. Editing by Anastasia Moloney and Ellen Wulfhorst.)