May 2 (Reuters) - Can inherently volatile cryptocurrencies become safe havens? Apparently they can in some parts of the world, like Argentina and Turkey, where soaring prices and falling local currencies have forced people to take 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 estimated global cryptocurrency ownership rate of 11.9% – according to data from research company GWI.
What is common to Turkey and Argentina, besides their leading positions in crypto adoption, is high inflation, which has led to the collapse of currencies and capital controls to deter local residents from withdraw 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 highs. The Argentine peso trades around 464 to the dollar on the black market, more than double the official exchange rate of 222.
Much of the safe-haven buying has been in 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. offering investors an alternative to scarce dollars.
"People, whether 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 payment platform for startups in emerging markets.
“They potentially want to 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 hit a multi-month high last week, driven by the weakening Turkish currency and the historic upcoming presidential and legislative elections, Kaiko analyst Dessislava Aubert said. .
“In general, crypto adoption tends to be higher in countries with capital restrictions, financial instability, and political instability,” K33 Research analysts wrote.
GLOBAL CRYPTO FEVER
While bitcoin, the world's largest and most well-known cryptocurrency, is up 72% this year to $30,000, its highest level in 10 months, overall trading volumes are far from the levels seen. last summer after investors were spooked by a series of crypto player meltdowns culminating in the demise of FTX.
Transaction volumes for spot bitcoin are highest during US business hours, with little change from 2022, according to Kaiko data.
However, regulatory issues faced by crypto exchange Binance in recent months have caused derivatives trading volume to shift slightly to Asia-Pacific times from the Americas, Kaiko said.
Excluding dollar volumes in crypto, the second most dominant currency is the South Korean Won.
South Korea's crypto trading volumes have returned to levels seen in the first 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 volume.”
Reporting by Medha Singh and Lisa Mattackal in Bengaluru; Editing by Vidya Ranganathan and Sam Holmes
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