Javier Milei, a libertarian economist, was elected president of Argentina on November 19th last year and took office on December 10th, marking a significant shift in the country's political landscape. His victory symbolizes a departure from Argentina's traditional politics, particularly the Peronist establishment, and liberalization of the economy.

Milei’s economic philosophy and policies he’s already rolled out (as we describe below) will accelerate crypto in Argentina.

As a reminder, Argentina already is a hotbed for crypto even before Milei’s election:

• 51% of Argentine consumers have held crypto at some point (Source: AMI)

• High cost for remittances at ~7.2% (Source: Global Partnership for Financial Inclusion)

• Proven founder ecosystem (Decentraland, Lemon Cash, Ripio, Coinbase Custody via Xapo M&A, OpenZeppelin, and more…)

• Robust developer ecosystem with ~700K developers growing ~41% y/y (Source: Github)

We’re surprised how little attention crypto media is giving Argentina when compared to the hype that El Salvador got for its successful policy reforms. Argentina has a ~7x bigger population >7x and a GDP ~17x larger vs El Salvador!

What Javier Milei is doing from a policy perspective:

Milei has signaled two key policy pushes that could serve as tailwinds for crypto adoption in the country:

1. Legalization of $BTC and crypto as basis for settlement

2. Dollarization of the economy

His statement that Bitcoin could be the "natural answer" to the Central Bank "scam" indicates an inclination towards embracing digital currencies in some form. Milei's central policy proposal, which has garnered much attention, is the closure of Argentina's Central Bank and dollarize the Argentinian economy, which reached annual inflation of 211% in 2023.

In this context, Diana Mondino, serving as Argentina's Minister of Foreign Affairs, International Trade, and Worship, stated that a new decree authorizing the use of specific currencies for contractual agreements and payments will also encompass Bitcoin on December 21, 2023.

We already are seeing the impact of this new policy. In January, a landlord and tenant in Rosario, Argentina signed the country’s first ever $BTC based rental contract equivalent to 100 USDT / month.

Mondino also said that other cryptocurrencies and commodities, such as liters of milk, could also be used to settle contracts. The decree also includes clauses that allow people to select the currency they prefer for transactions, mainly focusing on foreign currencies.

The decree is part of the Decree of Necessity and Urgency (DNU), a package of measures to deregulate the country's economy announced by President Javier Milei.

In addition, Milei has decided to exclude the proposed taxes on cryptocurrencies from the comprehensive omnibus reform package. The favorable tax policy (at least for the near term) combined with ability to settle contracts in crypto will create incentives for more firms to adopt crypto and teams or whales to locate to Argentina.

Milei’s push to dollarize the economy will also be a boom for stablecoins. Hyperinflation and high FX take rates have historically pushed both retail and businesses towards payments and holding of treasury in USDT / USDC. However, capital controls have made it difficult to off ramp these stablecoins to be used in the local economy (TLDR: There is the official rate applicable to the Argentine banking system and import-export transactions vs “Blue rate” charged by unlicensed entities moving funds in and out of Argentina).

Dollarization of the economy would create a pathway for easier on / off ramping of USDT / USDC, which have its inherent advantages over traditional payment rails including T-0 settlement and 10-1000x cheaper take rates.

Where we foresee opportunities:

• Bitcoin Mining & Bonds

  • El Salvador’s Bukele has demonstrated strong appetite from debt investors for Bitcoin based bonds, expected to raise $1B in order to seed a Bitcoin mining industry reliant on renewables. Argentina historically suffered from debt capital markets woes and Milei could take a page from Bukele’s playbook, especially given Milei’s pro $BTC statements.

  • Argentina is the most profitable country to mine $BTC in Latin America, with a cost of US$9,000 per BTC. Milei’s pro-Bitcoin and pro-business stance could attract miners to invest in the country.

• B2B Trade & Stablecoins

  • As mentioned above, cross border trade settlement in stablecoins reduces takes rates and speeds up settlement times - two of the most important factors for businesses operating XB.

  • Milei’s formalization of crypto into the economy will incentivize more businesses to use stablecoins and crypto as a means of settlement.

  • Currently, USDT on Tron is the dominant form of crypto payments in the country, but we are seeing a push by other stablecoin issuers (e.g., Circle) and other chains (e.g., Solana) to grow market share.

• Neobanks & Fintechs

  • Allowing individuals to pay rent and purchase goods in crypto incentivizes users to keep their crypto on-chain - the crypto use case expands beyond remittances and savings into daily life payments.

  • Crypto neobanks already are popular (See: Belo, Lemon Cash, etc.) and we expect more adoption both by crypto first apps and traditional neobanks, similar to Nubank’s crypto push in Brazil.

• Real Estate

  • A large portion of crypto whales prefer to keep funds on crypto rails vs banking rails. Similar to the impact seen from El Salvador’s legalization of BTC as tender, many crypto whales could seek to diversify funds into Argentine real estate (tokenized investments, direct ownership, etc.).

99 Capital Updates

Expanding Our Lineup

To scale our operation, we are excited to introduce Pedro Peres, the latest addition to our Investment team. Pedro brings an engineering first perspective to our team, having previously worked as a blockchain developer. As a Brazilian native, he also provides us insights and connections in the region.

Pedro has also contributed to 99 Capital’s research including an overview of the crypto regulatory status in Brazil which you can find here.

Deals

Finally, we are proud to announce some startups that have entered our portfolio:

BRLA

BRLA is a Brazilian crypto project offering several solutions for offshore cross-border payments and on/off-ramp. In addition, they have their own stablecoin which has synergy across their payments businesses.

Brazil is a huge market to disrupt due to its high costs for international payments and bureaucracy to set up an on-shore operation.

Canza Finance

Canza Finance is a crypto fintech that offers several DeFi products in Africa to improve efficiency of cross border settlement.

Africa is a great use case for these type of solutions due to the complexity and cost of settling currencies. In Nigeria especially, the macro situation especially around inflation has pushed fast adoption.

99 Capital participated in a $2.3 million fundraising round led by Polychain.

Sleepagotchi

Sleepagotchi is a mobile app that helps gamify sleep via digital collectibles.

The engineering team in Southeast Asia from 99 Capital’s partner Jambo were fanatical players of Sleepagotchi - we saw during our diligence process that mobile first casual games like Sleepagotchi have high receptiveness in emerging markets, where we plan to assist in their go to market.

99 Capital participated in a $3.5 million fundraising round that included 6th Man Ventures, Collab+Currency, Shima Capital, 1kx, DeFi Alliance, Sfermion, Emoote, and LCA Game Guild.