08.01.14

Why BitCoin speculator Tim Draper wanted in to Argentina

Posted in Culture of Lickspittle, Fiat money fear and loathers at 10:35 am by George Smith

A couple weeks back venture capitalist and Six Californias ass hat Tim Draper won a US government auction for 30,000 BitCoins.

From the blog:

Draper is planning to use his digital wealth, in partnership with a company called Vaurum, to finance bitcoin-exchange services in the developing world. At a press conference, he praised bitcoin’s ability to “provide liquidity and confidence to markets that have been hamstrung by weak currencies.” He singled out Argentina and its out-of-control inflation.

This week Argentina defaulted on debt repayment of $1.5 billion to a group of hedge-fund bond holders on Wall Street. The hedge funders, which the Argentinian government refers to as “vultures,” refused to take a hair-cut on the debt owed them, a devaluation that all the rest of Argentina’s creditors had agreed to years ago. They pursued Argentina in American courts and won a ruling that Argentina owed them as per the original terms.

So this week, Argentina thumbed its nose at them, missing a debt service to all its bond credit holders.

From the New York Times:

The multiyear dispute reached a breaking point on Wednesday after Argentina missed a deadline on a scheduled interest payment to its regular bondholders. Argentina’s predicament has arisen from a ruling by a federal judge in the United States that it could not make its regular payments on bonds without also paying the hedge fund holdouts. Wednesday evening, a court-appointed mediator issued a statement declaring Argentina to be “imminently” in default.

In 2001 Argentina also defaulted on world debt, a crisis that brought on economic crisis and runaway inflation. Inflation continues to a problem in Argentina, where citizens have developed a black market to dump pesos for American dollars.

Enter the idea that BitCoin would be a great substitute to the black market exchange US dollars.

Continuing, from the Times:

Many Argentines who saw the value of the peso spiral quickly and their savings vanish after the last default have not been caught off guard this time.

“These past years have taught us a strategy of how to save up money in a reliable way,” Gustavo said.

For most Argentines, the currency of choice is the dollar, but they have to go through the black market to obtain it. “It is difficult or almost impossible to keep those savings safe in Argentina, because money loses value very quickly here,” he added.

“I think that many people buy the argument that Argentina did not default, and buy into the hatred of the evil vultures,” Barbara Kotschwar, a research fellow at the Peterson Institute for International Economics, told the Times.

The running narrative in the US and western press is that Argentina must repay its American “vultures” or suffer terrible unspecified consequences. Argentina is already unwelcome in global credit markets so it’s unclear what kind of revenge Wall Street could exact.

From the Economist:

Defaulting has helped no one: none of the bondholders will now be paid, Argentina looks like a pariah again, and its economy will remain starved of loans and investment.

Happily, much of the damage can still be undone. It is not too late to strike a deal with the hold-outs or back an ostensibly private effort to buy out their claims … More important, it would help to change perceptions of Argentina as a financial rogue state.”

Financial rogue state. Perish forbid American hedge-funders not receive their blood.

So an Argentine default that worsens conditions and causes more still more currency inflation would be helpful to those operating a BitCoin exchange in that country.

WinkDex has BitCoin at $600, trending downward a bit over the past couple weeks.

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