Digital coins lure inflation-weary Argentines and Turks
By Medha Singh and Lisa Pauline Mattackal
(Reuters) – Can inherently volatile cryptocurrencies become safe havens? Apparently they can in some parts of the world, such as Argentina and Turkey, where skyrocketing prices and falling local currencies have forced people to seek refuge in digital coins.
Digital currency ownership in Turkey was the highest in the world at 27.1% followed by Argentina at 23.5% – well above the global crypto ownership rate estimated at 11.9% – according to data from research firm GWI.
What Turkey and Argentina have in common in addition to their pole positions in crypto adoption is high inflation, which has led to crumbling currencies and capital controls to discourage local residents from withdrawing money. Turkey’s annual inflation was 50.51% in March, Argentina’s was even higher at 104%.
The lira and the peso have plunged and are at record low levels. Argentina’s peso is trading around 464 per dollar on 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 linked one-to-one to a traditional asset such as the US dollar or gold, giving investors an alternative to scarce dollars .
“People, whether they’re on the retail side or the institutional side, are thinking about how we can hedge against currency devaluation,” said Ehab Zaghloul, chief researcher at Tribal Credit, a digital payments platform for emerging market startups.
“They potentially want to have additional assets tied to a stronger currency, so things like USDC or USDT or something tied to a stronger currency like the US dollar.”
Trading volume for the USDT-Turkish lira pair hit 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,” wrote analysts at K33 Research. (Graphic: Rise in Crypto Ownership, https://www.reuters.com/graphics/FINTECH-CRYPTO/WEEKLY/byvrlblqrve/chart.png)
GLOBAL CRYPTOFEVER
While bitcoin, the world’s largest and best-known cryptocurrency, is up 72% this year to $30,000, a 10-month high, overall trading volumes are far from last summer’s levels after investors were spooked by a series of crypto player collapses that culminated in FTX’s demise.
Trading volumes for spot bitcoin are highest during US trading hours, little changed from 2022, Kaiko data showed.
However, regulatory issues faced by crypto exchange Binance in recent months have led to a slight change in derivatives trading volume against Asia Pacific hours from the Americas, Kaiko said.
If dollar to crypto volumes are excluded, the second most dominant currency is South Korea’s won.
Crypto trading volumes in South Korea are back to Q1 and Q2 2022 levels after a weak fourth quarter in 2022, analysts at crypto investment firm Matrixport said.
“The boom in 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 volume.”
(Reporting by Medha Singh and Lisa Mattackal in Bengaluru; Editing by Vidya Ranganathan and Sam Holmes)
