Back in 2012, I became obsessed with currency.
Argentina’s currency crisis was in full swing, and I had the good fortune to spend my college summer working in Buenos Aires. It was a firsthand economics lesson into how people’s behavior changes when inflation is 40%.
It was at that time in Argentina where I first encountered street hawkers (and even my landlord) offering to convert pesos at double the official exchange rate. There was a saying that “everyone and their grandmother” was hoarding euros and dollars, doing anything they could to store money with a inflating local peso.
It was also in Argentina where I first heard of people buying Bitcoin as a store of value.
I’ve previously written about how my curiosities with currency, and which eventually became the subject of my undergrad thesis. But it wasn’t until a year after all that, while reading Nathaniel Popper’s book Digital Gold, where I decided to take my study one further: I decided to apply for a Fulbright grant to study bitcoin.
In 2015, BitCoin (back when the C was capitalized) had a bad reputation. My college’s grant specialist said I was unlikely to get accepted because of its “illegal” nature. Again, this was right on the heels of Silk Road and Mt Gox’s collapse.
Even the Argentine economist I convinced to be my sponsor said he thought bitcoin was a fad. His response back to me:
“The problem with Bitcoin is that nearly all the economists think it’s crazy…Bitcoin doesn’t exist here, save for a few militants and activists.”
Nonetheless, I went through with my application. Ultimately, my college counselor was proven right; I was not accepted.
And I was really crushed.
But I did feel a tinge of pride when recently, 3 years later, I came across my application on my hard drive. And that’s because so much has changed in the space. Crypto has been legitmized. Last November, nearing the peak of the bubble, it dominated just about every Thanksgiving dinner.
Having witnessed several hype cycles as a tech analyst now, it’s hard to make sense of the insane hype (and brilliant minds) flocking to cryptocurrency. Fred Wilson, who’s probably the most famous tech investor in the world, recently said, “Most of the reading and research I am doing is in crypto. Most of the new pitches I take are in crypto.” And almost everyone I meet or regularly read in tech tells me this crypto craze is here to stay.
So, in short, it’s never been a more timely area of study.
My hope is that some recent-grad-cum-cryptoeconomist will see this and will think about applying for something similar for the fall. I think they’ll have much better chances.
Here was my application:
STATEMENT OF GRANT PURPOSE
Name: Nicholas Pappageorge Country: Argentina Field of Study: Economics
Title: Digital Currency Adoption and Capital Controls
Introduction: With the Fulbright grant, I will study the economics and technological adoption of digital currencies (a.k.a. “cryptocurrencies” or “Bitcoin”) in Argentina as part of an independent research project. Working under X, I will document the adoption of digital currencies and research how capital controls and local currency markets impact their adoption.
Background: “Personal computers in 1975, the Internet in 1993, and—I believe—Bitcoin in 2014,” says perhaps the most influential technology investor alive, Marc Andreessen. Alternatively, high profile economists like Paul Krugman consider digital currencies an absurdity. Whether a skeptic or an ardent supporter, the fact about digital currencies is that they’ve gained significant traction in only six years of existence. Silicon Valley is beating the drum of BitCoin, heralding it as a potential disruptor of the entire financial system. Even the former Secretary of Treasury Lawrence Summers currently sits on the boards of two BitCoin startups. Startups and big banks are finally responding to the new technology, and thusly, there hasn’t been a better time to study the phenomenon in the field. Who uses these digital currencies? And what motivates them?
With a relatively stable financial system, Americans are mostly sheltered from the shocks of foreign exchange. But in economically fragile parts of the world, most especially in Argentina, digital currencies like BitCoin are an attractive method for making payments, storing wealth, and sending remittances. Currently, less than half the population there uses Argentine banks and credit cards, for fear of its dysfunction and regulations. Argentina is a prime crucible to study the adoption of digital currencies. Economist Garrick Hillman from LSE created the “BitCoin Market Potential Index” (BMPI) that found that Argentina is the #1 country for the adoption of digital currencies. Increasingly, outlets like The Economist (“BitCoin in Argentina: If it can’t make it there”) and the New York Times (“Can BitCoin disrupt Argentina?”) suggest that if digital currencies such as BitCoin are going to make it anywhere, Argentina is the place.
Argentina is an ideal case study for cryptocurrencies for two main reasons: hyperinflation and capital controls. Argentina is experiencing an ongoing currency crisis. The average person in Argentina seeks out foreign currency—instead of the local peso—as a storage of wealth because so much value is lost to inflation. There’s a saying that “everyone and their grandmother” stashes dollars, sometimes literally under a mattress. This phenomenon of buying foreign currency has produced a large informal market, with an estimated $160B in US Dollars held there. That makes Argentina the holder of 1 in every 15 dollars in circulation, a rarity this day and age. Second, capital controls—restrictions on money transfers, foreign credit cards and banking—make remittances and payments very cumbersome. Cryptocurrencies like Bitcoin are, in effect, cash inside a digital wallet. No borders, time zones, governments, or fraud. Digital currencies address all of these monetary needs, and it’s available to anyone without a middleman or clearing house.
Will this brand new technology catch on in the country that needs it most? What effect do the capital controls and the economic climate have on the adoption? And what does it all mean for the future of digital currencies? My research plans to get to the heart of these questions. Research and Study Plan: My plan is twofold: to study and document the adoption in storybased journalism, and also to have the independent study culminate with a publishable economics paper. Firstly, I want to document the lives and case studies of people who do use digital currencies, and understand what motivates these early adopters. I want to give voice to the local entrepreneurs, online activists, and other groups that are finding a use for it. I want to learn their story and be able to tell it reliably and broadcast it with an online presence in the form of bilingual blog, and travel to larger cities (e.g. Cordoba, Rosario) in the first 2 months.
And secondly, I want the work to culminate with an academic research paper that falls within the discipline of economics, using all of the data available to empirically understand the relationship between capital controls and their impact on digital currency adoption. Publishing an academic paper is a key goal of my project, as many economists are reluctant to put out research on this topic.