Those amounts are still low in comparison to the Bank for International Settlements’ 2019 study, which showed around $71 billion in lira transactions every day, but they are larger than any of the previous five quarters. Turks are especially fond of the stablecoin tether, whose worth is tied to the US dollar.
According to data source CryptoCompare, the lira surpassed the dollar and euro as the most transacted government-issued currency versus tether this autumn. Turks have often survived economic downturns by holding their money in US dollars, euros, or gold. The advent of cryptocurrencies in past years has created a new class of instruments for storing wealth, although one that is significantly more volatile.
The lira has plummeted 40% of its exchange value versus the dollar since September. By early November, Bitcoin had risen about 40% versus the US dollar, but it is currently down more than 10%. Advertisement for cryptocurrency exchanges exist on trams, billboards, and one of the city’s two airports in Istanbul, Turkey’s biggest metropolis and commercial center.
Bitcoin shops have sprung up at the Grand Bazaar, nestled into alleyways amid sellers who also sell foreign currencies and gold. Last October, President Recep Tayyip Erdogan threw Turkey’s financial system into disarray by pushing for consecutive interest-rate reductions in the face of increasing inflation.
The currency has steadied in the last few weeks after a government rescue of depositors, but local Turks are still skeptical. “The illogical policies surrounding rates, decreasing faith in public numbers about inflation and political decisions…made cryptos a safe haven, despite the fact that cryptos are relatively dangerous and unpredictable financial assets,” said Kaan enay, a 27-year-old crypto trader in Bursa (northwest Turkey).
Enay said that he started trading bitcoin in 2017 to supplement his income. He is increasingly seeing it as a means to preserve his lira earnings from inflationary pressure. The purchasing power of the lira he gets from his employment at a fabric manufacturer has dwindled as costs have risen. Despite an official prohibition on the use of cryptocurrencies as a method of payment in the nation imposed last year, Turks have welcomed them.
The unannounced restriction “caused a terrible experience in the Turkish bitcoin community,” according to Turan Sert, an advisor to Turkish crypto Paribu. According to Sert, the administration has pledged that a new cryptocurrency legislation would be introduced to the country’s parliament shortly, but there are little information on what its effect will be.
Cryptocurrencies have gained tremendous popularity in Turkey and other developing countries where people are skeptical of government economic policy. Nigerians are using bitcoin to make payments as a result of currency depreciation and strict regulation over exposure to global currencies.
Following two decades of being connected to the US dollar, El Salvador became the first country to adopt bitcoin as legal cash in 2021. A portion of the skepticism in Turkey goes beyond the lira. Foreign currency, mostly dollars and euros, account for two-thirds of Turkey’s banking deposits.A proportion of those US dollars were given to the central bank and also the government to shore up the lira in the Forex markets.
If there is a scramble to takeback dollars, Turkish banks will need to obtain part of those dollars back to fulfill depositors’ requirements, and it is unclear if the government will be able to provide the dollars. In the worst-case scenario, others worry that the government may compel banks to change their dollar deposits into Turkish lira.
As per numerous Turkish savers, this is leading some to convert bank-held dollars and cash dollars for what are termed as stablecoins, cryptocurrencies whose value is tethered to conventional currencies including the US dollar. According to Chainalysis, tether was engaged in more over half of the transactions against the lira in December. Tether and other stablecoins are often used as an entry point to trade in and out of holdings in highly volatile coins like bitcoin and ether.
According to Esra Alpay, chief marketing officer of Turkish crypto exchange Bitlo, the number of new traders increased last quarter as the lira’s value plummeted.
“The Turkish lira’s instability and growing inflation observed in the last few months has encouraged our investors to regard cryptocurrency as a beneficial long-term investment and a short-term inflation hedge,” she added.
On Monday, Ege Tuluay, a 24-year-old student studying to be a sailor, stepped into Caspicoin, a crypto store in the Grand Bazaar, to inquire about the commission for purchasing tether with his US dollar funds.
He intends to spend the tether on other cryptocurrencies. “Cryptocurrencies provide hope for Turkish individuals who are poor and wish to generate money. It appears to be good money for Turks,” he remarked.