Crypto Emerge as Safe Havens in Troubled Argentina, Turkey

Amidst economic turmoil and soaring inflation in countries like Turkey and Argentina, cryptocurrencies have emerged as safe havens. Data reveals Turkey's crypto ownership rate at 27.1% and Argentina's at 23.5%, far exceeding the global average of 11.9%. Stablecoins pegged to traditional assets like the US dollar have gained popularity as an alternative to depreciating local currencies.

Cryptocurrencies Emerge as Safe Havens Amidst Economic Turmoil in Argentina and Turkey

In an unprecedented twist, inherently volatile cryptocurrencies have transformed into safe-haven assets in countries plagued by economic turmoil, such as Argentina and Turkey. Skyrocketing inflation and plummeting local currencies have compelled citizens to seek refuge in the digital realm, resulting in remarkable crypto adoption rates.

According to data from research firm GWI, Turkey boasts the highest cryptocurrency ownership rate globally, with 27.1% of its population holding digital assets. Argentina closely follows at 23.5%, far surpassing the estimated global crypto ownership rate of 11.9%.

What unites Turkey and Argentina, beyond their prominence in crypto adoption, is rampant inflation, which has wreaked havoc on their respective currencies and prompted capital controls to prevent the outflow of funds. Turkey's annual inflation rate soared to 50.51% in March, while Argentina's reached an astronomical 104%.

The Turkish lira and Argentine peso have spiraled into record lows, exacerbating the economic crisis. In the black market, Argentina's peso trades at around 464 per dollar, more than double the official exchange rate of 222.

To combat the devaluation of their currencies, individuals and institutions alike are flocking to stablecoins, such as USD Coin (USDC) and Tether (USDT). These crypto tokens are pegged one-to-one to traditional assets like the U.S. dollar or gold, providing investors with an alternative to the increasingly scarce local currency.

"People are considering how they can hedge against currency devaluation, whether they are retail or institutional investors," explained Ehab Zaghloul, chief research scientist at Tribal Credit, a digital payments platform for emerging market startups. "They are seeking assets pegged to stronger currencies, such as USDC, USDT, or anything backed by a currency like the U.S. dollar."

Amidst the economic turmoil, trading volume for the USDT-Turkish lira pair surged to a multi-month high last week, fueled by the currency's weakness and the upcoming presidential and parliamentary elections, according to Kaiko analyst Dessislava Aubert.

"Crypto adoption tends to be higher in countries with capital restrictions, financial instability, and political instability," noted analysts at K33 Research.

Global Crypto Market Dynamics

While bitcoin, the world's largest cryptocurrency, has gained 72% this year, hovering around $30,000, its highest point in 10 months, overall trading volumes remain far below last summer's levels. Investor confidence was severely shaken by the collapse of crypto exchange FTX and other industry players.

Spot bitcoin trading volumes peak during U.S. opening hours, with little variation from 2022, as per data from Kaiko. However, regulatory challenges faced by Binance have shifted a portion of derivative trading volume to Asia Pacific hours from the Americas.

Excluding dollar-to-crypto transactions, the South Korean won emerges as the second most prominent currency in crypto trading. Crypto volumes in South Korea have rebounded to levels seen in the first and second quarters of 2022 after a lackluster fourth quarter.

"The dominance of altcoins makes South Korea a captivating market to analyze," remarked analysts at crypto investment firm Matrixport. "This stands in sharp contrast to other crypto exchanges, where bitcoin and Ethereum account for the bulk of trading volume."

The rise of cryptocurrencies as safe havens in countries facing economic turmoil underscores their potential to play a role in mitigating financial risk. However, the regulatory landscape remains uncertain in many jurisdictions, and the volatility of crypto markets should not be overlooked.