Turkey's central bank has banned the use of cryptocurrencies and cryptoassets to purchase goods and services, citing possible "irreparable" damage and significant transaction risks in a move that cooled global bitcoin prices.
In legislation published in the Official Gazette on Friday, the central bank said cryptocurrencies and other such digital assets based on distributed ledger technology could not be used, directly or indirectly, as an instrument of payment.
Dr Yusuf Levent Sahin from Anadolu University said that the decision will protect the small investor and provide ease of taxation.
“Digital wallets where cryptocurrencies are kept are open to attacks. With the government’s ban, the number of people who suffered from these attacks will also decrease. Financial smuggling will be prevented. This is a regulation aimed at reducing the probability of a small investor being hurt,” Sahin said.
Turkey's growing crypto market has gained momentum in recent months as investors joined a global rally in bitcoin, seeking to hedge against lira depreciation and inflation, which topped 16 percent last month.
Bitcoin was off nearly 3 percent at $61,490 versus the dollar at 0754 GMT after the Turkish ban.
In a statement, the central bank said cryptoassets were "neither subject to any regulation and supervision mechanisms nor a central regulatory authority," among other security risks.
"Payment service providers will not be able to develop business models in a way that cryptoassets are used directly or indirectly in the provision of payment services and electronic money issuance," and will not provide any services, it said.
"Their use in payments may cause non-recoverable losses for the parties to the transactions ... and include elements that may undermine the confidence in methods and instruments used currently in payments," the central bank added.
This week Royal Motors, which distributes Rolls-Royce and Lotus cars in Turkey, became the first in the country to say it would accept payments in cryptocurrencies. Globally, giants such as Apple, Amazon and Expedia also accept such payments.
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The main opposition Republican People's Party or CHP criticised the decision, likening it to President Recep Tayyip Erdogan's decision last month to fire the central bank governor.
Crypto trading volumes in Turkey hit $27 billion (218 billion lira) from early February to 24 March, up from just over 7 billion lira in the same period a year earlier, according to data from US researcher Chainalysis analysed by Reuters.
Cryptocurrency worth 23 billion lira was traded in the first few days after the removal of the central bank chief last month, data showed, versus 1 billion lira in the whole of March 2020.
Last week, Turkish authorities demanded user information from crypto trading platforms.
The legislation goes into effect on April 30th.