May 2 (Reuters) - Can intrinsically volatile cryptocurrencies become safe havens? Apparently, they can in some parts of the world, such as Argentina and Turkey, where high prices and falling local currencies have forced people to seek refuge in digital currencies.
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 the research firm GWI.
What is common to Turkey and Argentina, in addition to their prime positions in crypto adoption, is high inflation, which has led to currency crashes 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 sunk and are at record lows. 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 of stablecoins like USD Coin (USDC) and Tether (USDT), which are crypto tokens pegged one-to-one to a traditional asset like the US dollar or gold, giving investors investors an alternative. to the few dollars.
"People, whether on the retail or institutional side, are thinking about how we can protect ourselves against currency devaluation," said Ehab Zaghloul, chief research scientist at Tribal Credit, a digital payments platform for startups in emerging markets.
โThey want to potentially have additional assets pegged to a stronger currency, so things like USDC or USDT or anything pegged to a stronger currency like the US dollar.โ
Trading volume for the USDT-Turkish lira pair hit a multi-month high last week, buoyed by a weakening Turkish currency and the upcoming historic presidential and parliamentary elections, Kaiko analyst Dessislava Aubert said.
โIn general, cryptocurrency adoption tends to be higher in countries with capital constraints, financial instability, and political instability,โ 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 trade volumes are far from the levels seen last summer after investors they were spooked by a series of crypto player crashes that culminated in the demise of FTX.
Spot bitcoin trading volumes are highest during US opening hours, little changed from 2022, Kaiko data showed.
However, regulatory issues facing cryptocurrency exchange Binance in recent months have led to a slight shift in derivatives trading volume towards Asia Pacific hours from the Americas, Kaiko said.
If dollar-to-crypto volumes are excluded, then the next most dominant currency is the South Korean won.
Crypto trading volumes in South Korea 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.
โThe dominance of altcoins makes South Korea a very interesting market to analyze,โ Matrixport analysts said.
โThis is in stark contrast to other crypto exchanges where bitcoin and Ethereum account for the majority of volume.โ
Reporting by Medha Singh and Lisa Mattackal in Bangalore; Edited by Vidya Ranganathan and Sam Holmes
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