Cryptoverse: Digital coins lure inflation-weary Argentines and Turks

Can inherently volatile cryptocurrencies become safe-havens? Apparently they can in some parts of the world, such as Argentina and Turkey, where soaring prices and tumbling local currencies have forced people to seek refuge in digital coins.

Ownership of digital currencies in Turkey was the highest in the world at 27.1 percent followed by Argentina at 23.5 percent -- well above global crypto ownership rate estimated at 11.9 percent -- according to data from research firm GWI.

 

What's common to Turkey and Argentina besides their pole positions in crypto adoption is high inflation, which has led to crumbling currencies and capital controls to deter local residents from taking money out. Turkey's annual inflation was 50.51 percent in March, Argentina's was even higher at 104 percent.

The lira and peso have been plunging and are at record lows. Argentina's peso trades around 464 per dollar in the black market , more than double the official exchange rate of 222.

Much of the safe-haven buying has been of stablecoins such as USD Coin (USDC) and Tether (USDT), which are crypto tokens pegged one-to-one to a traditional asset such as the US dollar or gold, giving investors an alternative to scarce dollars.

 

"Folks, whether they're on the retail side or institutional side, are thinking about how can we hedge against currency devaluation," said Ehab Zaghloul, chief research scientist at Tribal Credit, a digital payments platform for startups in emerging markets.

"They want to potentially hold additional assets pegged to a stronger currency, so, things like USDC or USDT or anything pegged to a stronger currency like the US dollar."

Trading volume for the USDT-Turkish lira pair reached a multi-month high last week, driven by the weakening of the Turkish currency and the upcoming landmark presidential and parliamentary elections, Kaiko analyst Dessislava Aubert said.

"In general, crypto adoption tends to be higher in countries with capital restrictions, financial instability, and political instability," analysts at K33 Research wrote.

 

GLOBAL CRYPTO FEVER

While bitcoin , the world's biggest and best-known cryptocurrency, is up 72 percent this year at $30,000, its highest in 10 months, overall trading volumes are far from levels seen last summer after investors were spooked by a series of collapses of crypto players culminating in FTX's demise.

Trading volumes for spot bitcoin are highest during US opening hours, with little change from 2022, Kaiko data showed.

However, regulatory issues faced by crypto exchange Binance in recent months have led to a slight shift in derivative trading volume towards Asia Pacific hours from Americas, Kaiko said.

If dollar to crypto volumes are excluded, then the next most dominant currency is South Korea's won .

Crypto trading volumes in South Korea are back to levels seen in first quarter and second quarters of 2022 after a weak fourth quarter in 2022, analysts at crypto investment firm Matrixport said.

"The dominance of altcoins makes South Korea a very interesting market to analyze," Matrixport analysts said.

"This is in stark contrast to other crypto exchanges where bitcoin and Ethereum account for the majority of the volume."