Turkey has been one of the most vibrant cryptocurrency markets in the world. It has been the leading country in the Middle East on Bitcoin adoption based on the number of users and the supporting facilities like crypto exchanges. However, this is currently under threat due to the recent government regulations.
The rise of cryptocurrency has proven a threat to the Turkish lira, with the dire financial times culminating in the unexpected dismissal of Turkey’s Central Bank governor. As a result, the country has faced a sharp rise in inflation and a decline in exchange rates and foreign reserves. In exchange, the country’s citizens have been looking for viable alternatives like gold, foreign currencies and cryptocurrencies.
Studies showed around 16 to 20% of Turkish citizens have owned or used cryptocurrencies. The country also had an active crypto economy with daily transactions worth around $1-2 billion.
The decentralised nature of cryptocurrencies disadvantages the government. It thus encourages its citizens to invest back into the economy through gold and foreign reserves. To make this possible, the government moved in to ban crypto payments. Unfortunately, this came with massive effects leading to the collapse of various crypto exchanges.
Turkey’s cryptocurrency payments ban and impact on the industry
The Turkish central bank published a regulation banning all crypto payments for goods and services. The regulation established cryptos as intangible assets but cannot be used as fiat currency, electronic money, securities, payment instruments, or other capital market instruments.
With the Turkey crypto ban, it is more like the government wants to establish a controlled market by clarifying the status of cryptocurrencies as a medium of payment. The regulations might also have been informed by the plans to create a digital national currency by 2023. Without the possibility of using cryptocurrencies for payments, the digital Lira remains the only legitimate digital currency in the country.
Turkey’s crypto regulations have had a massive impact on the crypto industry. The inability to use cryptocurrencies for payments has rendered crypto exchanges redundant. Two of the top crypto exchanges in the country, Thodex and Vebitcoin collapsed amid accusations of fraud, with investors losing billions in the process.
Thodex ceased operations while holding more than 390,000 active users’ assets, with an asset base of around $2billion. Vebitcoin and Sistemcoin then followed by announcing the stopping of operations.
To ensure the citizens’ protection, the government later announced other strict regulations for crypto service providers. The regulations include the crypto service providers as institutions that help prevent the use of crypto in illicit transactions like money laundering and financing terrorists. In addition, the service providers will ensure customer identification and report any suspicious transactions.
The Future of Turkey’s cryptocurrency regulations
The changes in crypto regulations are unsettling, and the worst that could happen is a blanket ban on the cryptos. However, there is no risk for a total Turkey crypto ban and related activities. Instead, cryptos will only operate as an asset like gold, while the digital Lira remains the only viable digital currency for payments.