Why are cryptocurrencies booming in Turkey?

As governments and central banks around the world attempted to counter the devastating economic damage wrought by the Covid-19 pandemic by opening the stimulus taps to gush out trillions, it left many worried about the devaluation of their currencies.

One of the go-to safe havens in the context where confidence in fiat money is low, has been to use gold as a store of wealth. But what took place instead in overwhelming numbers, was the dramatic adoption of cryptocurrencies like Bitcoin, which began to fulfil the role of digital reserve-asset, leading it to be dubbed “digital gold” as its value soared (one Bitcoin is currently valued at $60,506).

And in Turkey it was no different, where investors say a weak lira and inflationary pressures, along with the hopes of quick gains, have driven demand.

“I think the gold of the new world is Bitcoin,” said public servant Mahmut Akdemir, who believes market stagnation during the pandemic has increased the demand for cryptocurrencies in Turkey.

Akdemir, 38, told TRT World he and his wife entered the crypto market a month ago after hearing many people around them were earning money from investing.

“From now, I will definitely invest,” he said. Using a hypothetical scenario to drive home his newfound enthusiasm, Akdemir declared that if he had $500,000 he would set aside at least $100,000 for crypto.

35-year-old banker Mehmet Emin Zengin told TRT World that he sees the pandemic having driven adoption due to increased unemployment and remote-working conditions, all of which had an impact on people’s exposure to the crypto market.

Zengin, who started a modest investment last year, feels the ease of accessibility and not being affiliated with any institution played a role in the surge of public interest in cryptocurrencies.

But he’s sceptical that it will put a dent in gold anytime soon.

“I don’t think Bitcoin will replace gold,” he said. “From the beginning of history, gold is a commodity that has not depreciated at all.”

Traditionally, Turkish individuals and businesses have long used gold and foreign currencies like the US dollar to shield themselves from high inflation.

As opposed to fiat currencies like the lira, Bitcoin’s limited supply – there can only be 21 million Bitcoins ever mined – in theory make it hedge against inflation and viewed as a store of value despite its volatility.

In February, the lira experienced a near 16 percent jump in inflation, well above the original target of 5 percent.

Adding jet fuel to crypto adoption rates came after last month’s removal of Turkey’s Central Bank governor Naci Agbal, allegedly over a disagreement in monetary policy. Following Agbal’s dismissal, the lira tumbled more than 14 percent against the US dollar, although it has slightly recovered since.

Between March 20-24, $2.8 billion worth of crypto was traded, compared to $12 million during the same period last year. And between the start of February and March 24, trading volumes hit $26 billion, with a spike on the weekend of Agbal’s departure.

According to data from Google Trends, the number of searches for Bitcoin reached an all-time high, seeing an upswing of 566 percent in the hours following news of the lira’s fall. Searches for gold, meanwhile, had flatlined.

At the beginning of 2021, Turkish crypto exchanges BtcTurk and Paribu were trading in excess of $1 billion daily.

Any discussion about cryptocurrencies in Turkey would not be complete without mentioning its expansion into the world of football.

Turkey’s largest crypto exchange BtcTurk, which has over 1 million users trading on the platform, is now a major sponsor of both the Turkish men’s and women’s national teams in lieu of next year’s UEFA European Championship.

Clubs Galatasaray and Trabzonspor have launched fan tokens, while Istanbul Basaksehir announced plans to launch on a blockchain-based fan token platform, Socios. Several reports claim that other major clubs like Besiktas and Fenerbahce are aiming to follow suit this year.

There are also cryptocurrency courses being offered at universities like Kadir Has in Istanbul, introduced in 2018. 

Also in 2018, the Istanbul Blockchain and Innovation Center (BlockchainIST Center) sprung up at Bahcesehir University, with the goal of closing the blockchain expertise gap and ensuring wider deployment of the technology in the country.

Uncertain regulatory environment

The latest uptick is only part of a much larger story of Turkish interest in crypto, which has been steadily growing for years.

According to crypto consultant Onur Gozupek, a crypto consultant for BtcTurk, Turkey is among the top five countries for adoption rates in the industry.

A 2019 survey by data company Statista claimed that one in five Turks – or 20 percent of 80 million people – had some form of “crypto exposure”.

While in a crypto report published in 2020 by Turkey’s Information Technologies and Communications Authority (ICTA), it estimated there were close to 2.4 million users in the country, around 3 percent of the total population.

Gozupek feels that number is higher, particularly given the bull run that Bitcoin is enjoying since 2020. “If you look at the market data from all the different exchanges, the number is at least 3 million, if not more,” he told TRT World.

The Turkish crypto community is very active when it comes to trading, he said, especially the younger generation. “Turkish people are traders, not holders. And due to tough economic conditions, people see cryptocurrencies as a way to earn money in the short-term, and potentially become rich.”

Part of the reason for crypto’s rapid growth in popularity is because Turkey has no regulatory framework yet – but that hasn’t made it legal or illegal.

Gozupek said the absence of regulation prevents adoption from filtering into the consumer market, making trading the only option for people interested in the space.

For Zengin, part of the attraction is that he can trade with low commissions and that he can direct his own investments without being monitored by anyone. In response to those who say that the market is akin to gambling, he believes it’s because they aren’t aware of how robust the crypto infrastructure has now become.

But because Turkish exchanges don’t need licenses, some are operating with inflated volumes, which is leading to investor losses, Gozupek cautioned. And the current bull market has led many to start trading “altcoins” – or alternative cryptocurrencies to the big names like Bitcoin and Ethereum that are cheaper but more volatile – to make quick returns.

However, he expects that environment to change in the coming year or two. The government is attempting to roll out its central bank digital currency (CBDC), the digital lira – expected to be launched in 2023 – which will affect how the public views cryptocurrencies.

“They will have to make a separation between digital currencies like the lira and cryptocurrencies,” he said. “Now, you only pay taxes on commissions that the exchanges charge on trades.”

Regulation would be beneficial for large-scale acceptance of digital assets and alleviate fears that cryptocurrencies like Bitcoin are used for nefarious transactions like money laundering.

Gozupek thinks a ban is unlikely, simply because the blockchain network cryptocurrencies operate on is peer-to-peer. “It’s impossible to block all transactions. Even if you shut down the internet, you can still send your Bitcoin through satellite.”

Instead, government intervention could likely mean higher taxes.

“It all depends how they choose to see it. Will they classify crypto as a security or a currency?” In Turkey, securities are taxed at a 23 percent rate.

While the government has so far kept its distance from the market, recent statements suggest it might be coming to an end.

In March, the Ministry of Treasury and Finance announced that it would work with the central bank in conjunction with regulatory bodies to come up with clear guidelines for cryptocurrencies.

Inevitably, Zengin envisions the private sector and governments integrating themselves into the virtual money market, with big companies producing their own cryptocurrencies in the future.

Akdemir feels adoption is only around the corner, as conversations become more mainstream.

“I recently went to the barbershop, and there were discussions on Bitcoin being haram and halal," he said.

“I think that after 5-10 years, we will even pay the barber in Bitcoin.”