Flocking Bitcoin: The Turks’ Solution to the Pound

The Turkish lira has become so volatile that the Turks have left the local currency in favor of assets that have a reputation for even greater risk: cryptocurrencies.

While the pound depreciated against the dollar in the last quarter of 2021, the volume of crypto trading used in the pound soared to an average of $ 1.8 billion a day on three different exchanges, according to blockchain analysis firm Chainalysis. These volumes are still small compared to the results of a 2019 survey by the Bank for International Settlements that revealed about $ 71 billion in transactions per pound every day, but they are still larger than in any of the five quarters before the last.

The Turks especially like the stable currency, which is pegged to the dollar. The pound became the most traded political currency against the tetra last fall, surpassing the dollar and the euro, according to data firm CryptoCompare.

The Turks overcame long periods of economic unrest by keeping their money in dollars, euros or gold. The rise of cryptocurrencies in recent years has introduced a new set of tools in which value can be stored, although these are much more volatile tools. Since September, the pound has lost 40% against the dollar. Initially, Bitcoin jumped by almost 40% against the dollar until the beginning of November, but has since fallen by more than 10%.

In Istanbul, the largest city in Turkey and the economic capital, advertisements for cryptocurrencies appear on the electric train, billboards and at one of the city’s two airports. Bitcoin-selling shops popped up in the Grand Bazaar, in the alleys where the exchangers selling foreign and gold coins are also located.

The crypto has become a haven

President Recep Tayyip Erdogan caused the Turkish financial system to falter last autumn when he pushed for more and more interest rate cuts despite rising inflation. The currency has stabilized slightly in recent weeks after the government intervened in favor of people keeping their savings in pounds, but most Turks have remained cautious and apprehensive.

“The meaningless policies on interest rates, declining confidence in published statistics on inflation and political decisions … have made crypto a safe haven, despite the fact that cryptocurrencies are risky and volatile financial assets,” said Kagan Squirrel, a 27-year-old trader in a northwestern Turkish stock exchange.

Squirrel said he started trading Bitcoin in 2017 to make more money. Increasingly, he also sees it as a way to protect his pound sterling income against inflation. The buying power of the pound he earns as an employee of a fabric manufacturing company has shrunk alongside the rise in prices.

The Turks adopted the cryptocurrencies despite an official ban introduced last year on their use as a form of payment in the country. The ban, revealed without warning, “created a traumatic experience in the Turkish crypto community,” said Turan Film, an adviser to the Turkish crypto exchange Paribu. The government has promised to introduce a new crypto law that will soon be sent to parliament in the country, but details of the law and how it will affect trade in these currencies are not yet known, a film said.

Cryptocurrencies have become more popular in Turkey and in parts of the developing world where distrust of government economic policies is high. Nigerians use Bitcoin for payments after there have been declines in their currency value and pious control of access to foreign currencies. El Salvador last year became the first country to recognize bitcoin as a passing currency for a trader, after twenty years in which its economy was pegged to the US dollar.

In Turkey, part of the distrust stretched beyond the pound. Two-thirds of Turkish bank deposits are in foreign currencies, mainly dollars and euros. Turkish banks are lending some of these dollars to the central bank and the government, who have used them to intervene in foreign exchange markets as part of a failed struggle to stabilize the pound.

Had there been a panic to withdraw dollars, Turkish banks would have had to get back some of those dollars in order to meet the depositors’ demand, and there is some question as to whether the government is at all capable of obtaining those dollars. In the scenario of the worst case scenario, there are people who fear that the government may force banks to convert dollar deposits into pounds.

This is pushing some people to exchange bank-held dollars and cash dollars for what are known as stable coins, currencies whose value is close to the value of traditional currencies like the dollar, some Turkish savings bank holders have said. More than half of the December pound trade included the tetra, Chainalysis said.

“Cryptocurrencies give Turks hope”

Stable currencies like Teter are also used as a gateway to trading positions in more volatile currencies like Bitcoin and Atherium. The Turkish crypto exchange Bitlo saw an increase in the number of new traders in the last quarter as the value of the pound fell, said Asra Alfei, the company’s marketing director.

“The volatility of the Turkish lira and rising inflation felt in recent months have led our investors to see cryptocurrencies as a profitable investment in the long run and hedging against inflation in the short run,” she said.

Aga Tuloui, a 24-year-old student undergoing salt training, walked into Caspicoin, a crypto store in the Grand Bazaar, on Monday to find out what the commission was for buying Atherium with his dollar savings. He intends to use Tatar to purchase other cryptocurrencies.

“Cryptocurrencies give Turks hope that they are impoverished and they want to make money. It seems to Turks like easy money,” he said.

By Editor

One thought on “Flocking Bitcoin: The Turks’ Solution to the Lira”

Leave a Reply