A bitcoin trading chart is reflected on the window of a cryptocurrency exchange kiosk in Istanbul
The surge in interest in cryptocurrencies has alarmed Turkish authorities © Bloomberg

Despite having a masters degree and a stable job, a middle-class lifestyle has felt increasingly unobtainable in recent years for Orhan, a 39-year-old Turkish web security expert.

Frustrated by his rapidly eroding purchasing power, Orhan last year joined the millions of Turks who have flocked to cryptocurrencies amid soaring inflation and a plunge in the Turkish lira.

“The lira is as volatile as a shitcoin,” he said, referring to the catch-all term among crypto enthusiasts for failed digital currencies. The lira plunged by about 45 per cent against the dollar in 2021. “When there are so many economic problems [in our country], people are looking for other ways to make money,” said Orhan, who did not want his second name published.

Orhan earned a profit of $4,000 on his initial $1,500 investment and cashed in his gains to buy himself a new computer.

The surge in interest in cryptocurrency — and a scandal last year that saw the sudden shutdown of a Turkish crypto exchange that left hundreds of thousands of customers unable to access their funds — has alarmed the country’s authorities who now want to regulate the sector.

President Recep Tayyip Erdogan has said a cryptocurrency law will soon be presented to parliament. He has said his government is engaged in a “war” against cryptocurrency.

The governor of Turkey’s central bank, speaking to foreign investors last month, said he was “uncomfortable” with the amount of money flowing into crypto assets.

These anxieties are shared by global regulators, who view cryptocurrencies as volatile and speculative. Many have concerns about illicit activities such as money laundering and terrorism financing facilitated by digital assets.

The rise in the use of digital assets can dampen the impact of monetary policy decisions and lessen official control of national currencies. China has banned both bitcoin and its creation, or mining, partly due to concerns that it would lose control of money flowing into cryptocurrencies.

The popularity of bitcoin has soared in countries with volatile currencies and high inflation. Turkey has the highest crypto transaction volumes in the Middle East, where volumes expanded 1,500 per cent last year compared with 2020, according to a report on global adoption trends from specialist data provider Chainalysis.

“Research suggests that many in the Middle East have turned to cryptocurrency to preserve their savings against currency devaluation, a trend we see in other emerging markets like Africa and Latin America,” the report said, adding that research suggest “a highly significant relationship between lira devaluation and [the amount of] lira trading on cryptocurrency exchanges”.

While Turks have long chosen to protect themselves against lira volatility by keeping their savings in dollars or euros, data suggest that some of them are turning to “stablecoins”, which are pegged to hard currencies or other assets and act as a bridge between digital coins and national currencies.

Data from cryptocurrency specialist Elliptic showed that Turkish lira trading volumes have surged 360 per cent in the past six months of 2021 against the most-traded stablecoin, tether. CryptoCompare, a specialist data company, calculated that nearly TL211bn ($15.8bn) worth of bitcoin was traded last year, compared with just TL20bn in 2020.

“Looking forward, we expect crypto adoption to increase in Turkey as uncertainty surrounds inflation of the lira,” said Alissa Ostrove, chief of staff at CryptoCompare.

Chart showing the volume of Turkish lira traded across crypto exchanges in the tether market

Turkey’s central bank last year announced a ban on using digital assets to make payments. More recently, the country’s banking regulator has told lenders to block customers from taking out personal loans denominated in lira in order to invest in foreign currency or crypto assets. Though few details have been confirmed about the forthcoming bill, experts said it was expected to focus on regulating crypto exchanges.

“From what I understand, they are looking at a law that protects users of cryptocurrency,” said Elcin Karatay, a managing partner at the law firm Solak & Partners who has taken part in consultations with members of parliament about the regulations. “I don’t think they want to ban cryptocurrency.”

Regulation would be positive for the industry if it “supports the sector, protects the investors, contributes to the economy, and ensures compliance with international markets”, said Onur Altan Tan, chief executive Bitci, the Turkish cryptocurrency platform.

Some users fear that the government could seek to prevent them from taking the proceeds of their investments out of the Turkish banking system – even if that would be hard to enforce.

For now the prospect of regulation has done little to dent interest in Turkey. TV news channels present bitcoin and ethereum prices alongside the dollar and euro exchange rates. Half-time television adverts at football matches tout the virtues of crypto exchanges.

“When I talk about crypto, everybody — my hairdresser, my taxi driver, my waiters — asks: ‘What do you invest in?’,” said Sima Baktas, co-founder of CryptoWomen Turkey, which promotes female involvement in the cryptocurrency world. “Everybody is interested.”

About a third of the 2,000 or so people who have taken part in training courses run by her group are housewives, said Baktas. “They say: ‘my husband is earning less money and I want to invest in crypto’,” she said.

Authorities have sought to lure people back to Turkish lira investments with a new scheme that promises to protect savers against exchange rate losses. Such steps are unlikely to work, analysts say, as long as Erdogan remains fixated on keeping interest rates far below inflation, which stood at an official rate of 36 per cent in December and is expected to rise further in the months ahead.

Orhan, the crypto trader, says that, rather than seeking to regulate digital assets, the government should be examining the root causes of its appeal. “They should be asking: why are people interested in cryptocurrency? Why are they taking this risk?” he said. “When there’s no stability, people look for alternative solutions.”

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