Like many other countries, Turkey is turning to crypto in an attempt to ride out current global economic problems. The country is experiencing high inflation and currency depreciation, but on a grand scale. A study in June suggested that inflation is running in the triple digits, possibly as high as 160%, although the official rate at the time was reported as 79%. At the same time, the lira has fallen in value, registering a 40% fall against the dollar during 2021 and 26% this year. This has served to heavily erode the value of real wages.
With the lira’s value displaying such volatility, it comes as no surprise that crypto usage has grown. Again estimates vary, but it is reported that anywhere between 8 million and 14 million of the 84-million population have used cryptocurrencies. In March 2021, daily crypto transactions stood at more than one million, with users looking to earn, save and transfer hard currencies. In the last quarter of 2021, cryptocurrency trading volumes using the lira stood at an average of $1.8 billion per day.
And yet, Turkey is not the most fertile market for this development. In 2017, the country’s Directorate of Religious Affairs said that bitcoin and other cryptocurrencies were not permissible in Islam. April 2021 saw the collapse of two exchanges, Thodex and Vebitcoin, and the disappearance of Thodex’s owner. Following this, the central bank banned the use of cryptocurrencies to buy goods and services although trading was permitted.
Crypto’s growth in Turkey
However, this doesn’t appear to have dulled interest in, or usage of, crypto, and a number of factors are feeding into the sector’s growth in Turkey. Economics is certainly one. Typically, the Turks have relied on foreign currency to protect their purchasing power, but even the dollar has proven inadequate in the face of such high inflation rates. The average salary has – despite hefty salary increases to try to counter the lira’s fluctuations and rising inflation – eroded to less than $300 per month.
Many are disillusioned with government policy, and don’t trust that the authorities can find a workable solution to the country’s current economic problems. In this respect, it helps that the median age in Turkey is 33; reports indicate the Millennial mindset is attuned to technology, more open to digital finance, and looking for alternatives to traditional banking.
It’s not just trading that is proving attractive; the number of crypto enterprises is growing rapidly, with crypto jobs offering payment in other currencies or stablecoins, as well as often a different way of working, free of the usual, more formal corporate constraints. For startups, crypto’s decentralized nature gives them access to global investors, making developing a company a possibility in an otherwise inhospitable economic climate.
As the country’s economic problems have continued, interest in crypto has shown no signs of diminishing. In September, a report emerged suggesting that more than one-half of all adult Turks use crypto. The KuCoin Understanding Crypto Users report revealed an increase from 40% in November 2021 to 52% in May 2023, with a focus on using crypto as a hedge against inflation. Men still make up the majority of investors, but the participation of women, particularly younger women, is rising. In terms of usage, 58% are looking to create long-term wealth, 37% to preserve the value of assets, 25% to diversify their investment portfolios, 34% for quick transactions and 17% for quick profits. Bitcoin remains the most popular cryptocurrency, used by 71% of Turkish crypto investors.
Underscoring the country’s interest in, and sizeable market for, crypto, the Gate.io exchange held a blockchain expo in Istanbul during October. Among the speakers was politician Aziz Akgül.
What crypto’s future looks like in large part depends on how the government regulates the industry. On one hand, regulation could be a boon. Globally, regulators are struggling to keep up with the rapidly developing crypto sector. On the other hand, if regulators either use a heavy hand or simply get the legislation wrong because they don’t understand the market and how it works, crypto’s development in Turkey could be hindered.
The president initially took a relatively benign approach, offering advice and suggesting that he wanted Turkey to become a producer (rather than a consumer) in the digital assets world, although what this looks like is unclear. In May, however, under a presidential decree, the authorities tightened anti-money laundering (AML) regulations, adding cryptocurrency trading platforms to the list of firms covered.
Legislation is being drafted, reportedly designed to streamline registration for new crypto exchanges and possibly allow exchanges to buy and sell crypto directly in the fiat currency. To date, legislators appear to be working with the country’s crypto community as they develop new regulations.