In some parts of the world, cryptocurrencies have become safe havens despite their inherent volatility. Argentina and Turkey, grappling with soaring prices and tumbling local currencies, have seen a surge in digital coin adoption. According to a GWI study, crypto ownership in Turkey is the highest globally at 27.1%, followed by Argentina at 23.5%, significantly higher than the estimated global crypto ownership rate of 11.9%.
High Inflation and Crumbling Currencies
Both Turkey and Argentina are struggling with high inflation, which has led to the depreciation of their local currencies and capital controls to deter residents from moving money out of the country. In March, Turkey’s annual inflation reached 50.51%, while Argentina’s was a staggering 104%.
The Argentine peso trades at around 464 per U.S. dollar in the black market, more than double the official exchange rate of 222. On the other hand, the Turkish lira has been plunging and currently stands at record lows.
A Turn to Stablecoins
Investors in these countries have been increasingly buying stablecoins like USD Coin (USDC) and Tether (USDT), which are crypto tokens pegged one-to-one to traditional assets such as the U.S. dollar or gold. This provides them with an alternative to the scarce dollars in their local markets.
Ehab Zaghloul, chief research scientist at Tribal Credit, explains that people are seeking ways to hedge against currency devaluation by holding additional assets pegged to stronger currencies like the U.S. dollar. Consequently, stablecoins like USDC and USDT are gaining popularity in Argentina and Turkey.
Growing Trading Volumes Amid Economic Uncertainties
The 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 presidential and parliamentary elections, according to Kaiko analyst Dessislava Aubert.
A K33 Research report also noted that crypto adoption tends to be higher in countries with capital restrictions, financial instability, and political instability. As Argentina and Turkey continue to face economic challenges, cryptocurrencies, particularly stablecoins, are proving to be a viable alternative for hedging against currency devaluation and providing relief during times of uncertainty.