The Latin American fiat currency shows a significant drop compared to the US dollar. Bitcoin shows better performance amid the coronavirus pandemic and a global economic drop.
Mexico’s national fiat currency, the peso (MXN), has depreciated by 21.5% until now in 2020, compared to the US dollar (USD). The loss occurs amid a fall in the Gross Domestic Product (GDP) and an economy that has begun to feel the effects of the coronavirus pandemic and low oil prices.
Last Thursday, April 30th, the Mexican peso showed a price of 24.11 units per US dollar, whilst this figure was around MXN 18.90 pesos per US dollar on January 1st. These all-time lows are putting pressure on the peso, and other Latin American currencies, since investors have taken refuge in the US fiat currency.
The same as in Mexico, where there is a depreciation of the national fiat currency, it is possible to observe this situation in other Latin American countries. In the first four months of the year, the Brazilian real (BRL) dropped by 26.5%, the Colombian peso (COP) lost 17.1% of its value, the Argentine peso (ARS) fell by 10.1% and the Chilean peso (CLP) decreased by 9.74 %.
According to analysts, Mexico’s economy, the second largest in Latin America, could fall by as much as 10% in 2020. In the first quarter, it recorded a setback of 1.6%, the biggest drop for three months in 11 years, according to the Reuters agency.
Bitcoin Gains Ground
Whilst the Mexican peso is facing a complicated situation, Bitcoin has appreciated by 19.7% until now in 2020. The main cryptocurrency was trading at USD 7,193 per BTC. However, last Saturday, May 2nd, its price was USD 8,960 per unit, with an advance of USD 1,767, according to data from CoinMarketCap.
Bitcoin’s growth comes amid the same global landscape due to the spread of the COVID-19 disease, economic recessions, low commodity prices, and widespread quarantines. In other words, what is affecting the economies and their national fiat currencies is also having an impact on Bitcoin in its first major crisis, but with more favorable results.
What happened with Bitcoin has escalated to such a point that it already exceeds gold as the best performing asset so far in 2020. The best valuation of Bitcoin might be related to the next halving, which will occur in a few days and will reduce by half the issuance of the cryptocurrency.
Unlike national fiat currencies, which central banks or national governments can discretely issue to control their economies, Bitcoin has a finite issuance of 21 million units. Currently, this emission is 12.5 BTC per block mined (approximately every 10 minutes) as an incentive for network miners. After the halving, the issuance will have a reduction of 50% to 6.25 BTC.
The Bitcoin boom shows that, in situations of recession or health crisis, it can be an alternative to safeguard value. That happens despite the volatility that the cryptocurrency market and traditional stock, commodity, and foreign exchange markets experience.
By Alexander Salazar
