Turkey was the largest cryptocurrency market in the Middle East in 2021, with exchange volume growing about 1,500% year-over-year, according to data from Chainalysis.
Attorney Burcak Unsal, a cryptocurrency expert, noted that the transaction volume of Turkish cryptocurrency was one of the largest in the world over the past year. The Statista portal, meanwhile, presented data showing that in 2020 Turkey was the fourth largest cryptocurrency market in the world in terms of the number of users.
Forty cryptocurrency exchanges currently operate in Turkey, the Middle East’s largest economy and home to around 85 million people. The most popular platforms are Bitcoin, Paribu, BTC Turk and Binance.
The appeal of cryptocurrencies in emerging Turkey stems from the high volatility and sharp fall in value of the Turkish lira (TRY), the local currency. Since 2020, the chronic devaluation of the lira has pushed many private players to find a safer way to invest and save their money. The exchange rate of the lira against the dollar has not been stable for a decade. Between 2013 and 2018, the local currency depreciated fourfold against the USD. In 2021 it lost 44% of its value and in 2022 it has lost more than another 25% to date, bringing total losses to around 70% over the past three years.
The high rate of inflation in the country – officially 80% in July but more than double that according to an independent analysis by Istanbul economists – compounded by the Turkish central bank and government’s adverse monetary policies in the quest for growth, has increased the appeal of the cryptocurrency market for Turks. The central bank refuses to budge on interest rates and refuses to raise interest rates despite loud market demands as it seeks to turn Turkey’s chronic trade deficit into a surplus. Rampant inflation and a collapse of the lira are a perennial issue for consumers and investors in Turkey under these circumstances. The government, meanwhile, is trying to stem the fall of the lira by restricting residents’ access to foreign exchange, often to no avail.
Hard currency instability
Finally, hard currencies face instability amid a global inflationary scenario of soaring oil and gas prices. Turkish residents who have relied on the dollar and other strong foreign currencies to protect their savings have become increasingly reluctant to rely solely on such fiat money to protect their assets and investments. Therefore, cryptocurrencies are becoming more popular, while national fiat money is perceived as less stable than digital assets. A similar trend can be seen in South America and Africa. According to surveys, the percentage of Turkish residents using cryptocurrencies ranged from 16% to 20% in 2020-2022. Turan Sert of Paribu, the largest cryptocurrency platform in Turkey, said: “In the past it was dollarization, which means to avoid fluctuations in their native currency, people kept their assets in dollars […] now the latest trend is called cryptolization”.
Unsal explained that Turkish residents have been investing heavily in cryptocurrencies as confidence in the lira has been waning for a very long time. On digital platforms, anyone can easily invest small amounts without any prior technical knowledge, in contrast to the stock market and in forex trading and real estate. These options are less accessible, more expensive, and filed for state taxes.
However, the cryptocurrency market in Turkey is not entirely secure and stable. In the case of global platforms in particular, dramatic fluctuations can often be expected due to simultaneous restrictive measures in various countries (in Russia, China, India and Qatar). Bitcoin recently fell to a record low after Chinese moves against digital currencies.
Additionally, two Turkish cryptocurrency platforms were shut down in April 2021. Thodex CEO Faruk Fatih Ozer allegedly fled to Albania with more than $2 billion in funds invested in his platform, with several of his alleged accomplices arrested in Turkey. A few days later, cryptocurrency platform Vebitcoin ceased operations in Turkey and four of its employees were arrested. Investors could not access their funds in their digital wallets.
This case increased distrust towards the Turkish state regarding the cryptocurrencies traded on its territory. The government appears to fear that cryptocurrencies will reduce the value and trust in the fiat national currency. Officials began to take a negative stance towards the market, although Turks increasingly took up the option to save or invest.
The growing suspicion became apparent when the Central Bank of Turkey issued a Crypto Asset Payments Ban Decree on April 16, 2021 to ban the use of cryptocurrencies as a means of payment for goods and services in Turkey. According to this law, the Turkish platforms are not allowed to propose any system to transfer cryptocurrencies to fiat currency. However, the law does not provide for a total ban on cryptocurrencies in Turkey. The Governor of the Central Bank of Turkey, Sahap Kavcioglu, stated that the legislation is necessary to implement a balanced digital money regime.
On May 1, 2021, amendments were implemented by a Presidential Decree to the Regulation on Measures to Prevent Money Laundering of Proceeds of Crime and Terrorist Financing. Cryptocurrency providers must report their activities to the Turkish Financial Crimes Investigative Committee (MASAK) and provide customer identification. The law was passed to prevent the use of digital money as a means of transaction in criminal or terrorist activities due to a lack of government control. Suspicious activity must be reported to MASAK directly by the digital providers, regardless of the transaction amount and for all transactions over TRY 75,000 (around US$4,200).
In May, Turkish authorities are said to have been working on a draft law that would provide more control over the cryptocurrency market and platforms. According to Turkish press reports, the law would aim to secure cryptocurrencies in the banking sector. The National Capital Market Board would issue permits for platforms to operate in the country. Under this law, a platform would need $6.1 million in capital to run its business. Foreign platforms would need to set up national branches that could be taxed in Turkey.
Analysts complained that the legislation would not benefit Turkey’s economy or the safety of digital users. According to Unsal, the cryptocurrency market should be controlled under comprehensive laws and Turkey was late in implementing it; the proposed steps would not encourage the development of Turkish investments.
Another market observer, Bora Erdama, said Turkey’s cryptocurrency market has very high potential on an international scale: “If Turkey becomes a good bridge in the crypto-asset ecosystem, there will be significant capital inflows into the country, not to mention from worrying about money flowing out of the country. Istanbul and Turkey are becoming a magnet for the crypto-asset ecosystem.” Protectionist measures by the government could jeopardize this development, Erdamar said, adding that the decree, which came into effect on April 16, 2021, bans the use of cryptocurrencies as a vehicle the payment, meant the end of the company for many start-up entrepreneurs.
Cryptocurrency expert Vedat Guven concluded that this move to prevent such usage could put a damper on projects based on blockchain technologies in Turkey. Guven said cryptocurrency platforms are critical to the development of this technology.
The Turkish government, meanwhile, tried to propose state-controlled alternatives for the unregulated cryptocurrency market. The government spoke of plans to soon launch a national digital currency, the Digital Turkish Lira Cooperation Platform, which will be regulated by the Central Bank of Turkey. The national digital currency should mitigate the risks for investors in the digital market. The central bank would propose digital wallets and remittances based on blockchain technology.
Turkish President Recep Tayyip Erdogan reiterated during a national youth gathering last year that he is waging a war on private cryptocurrencies. He said he will encourage the development of the national digital currency instead. According to cryptocurrency expert Artem Deev, many countries created a national cryptocurrency to ensure control over private exchanges that are perceived as competitors and to evade regulation.
Deev added that the trend seen in China and Russia, for example, could represent a strategy to weaken Turkey’s private cryptocurrency market and pave the way for state-sponsored digital assets to be presented as legitimate financial assets.
However, even given the negative events and publicity that have surrounded the cryptocurrency market in the private sphere over the past year, usage of the market among the Turkish population is expected to continue to increase. According to Sima Baktas, a Turkish cryptocurrency expert: “Even mainstream TV channels are now talking about crypto and even if they show very bad news about crypto, Turks are more interested in crypto because it seems they don’t care about news showing crypto as a kind of unreliable sector.”