Bitcoin in Turkey: A Familiar Pattern

Middle East Apr 14, 2021

Ed.: This post was published prior to the announcement of a cryptocurrency ban in Turkey on April 16, 2021. Please visit Bitcoin in Turkey: An Update for more information.

This week has had something of a sense of déjà vu: all-time high Bitcoin prices, major moves from players in the cryptocurrency space, and US government stances on crypto are snatching headlines. But as we've seen with this pattern before, there's usually an equally important, if hidden, crypto story going on at the same time. This time, this dubious honor goes to Turkey. Set at the very literal crossroads between Europe and the Middle East, it has aspirations of closer ties with the former but is wracked by political and economic issues usually associated with the latter. But to retread yet another pattern we've discussed before, this current economic chaos could mean a strong push for the widespread adoption of cryptocurrencies. So strap in for the latest stop on our crypto world tour, where we'll be taking a look at the state of crypto in Turkey.

Erdoğan's war on the Central Bank

As is the case with most economic crises, Turkey's current financial woes did not come out of nowhere. Though Turkey is considered a developed country and is a member of the G20, it has struggled to maintain a consistent economic base and is still considered a newly industrialized and emerging economy. A series of reforms implemented around 2000 aimed at continuing to modernize the country have led to large amounts of government debt and a low savings rate. This, coupled with slowing international investment, war-related crises on its borders, and a trend toward political authoritarianism in President Recep Tayyip Erdoğan has led to the Turkish lira to be included in a list of the "fragile five" currencies especially vulnerable to volatility and reliant on international aid. Economic crises in 2001 and again in 2018 were both caused by these factors and in turn helped the cycle of poor economic decisions to continue.

Turkish President Erdoğan's interference with the Turkish central bank has shaken faith in the country's fiat currency.
Turkish President Erdoğan's interference with the Turkish central bank has shaken faith in the country's fiat currency. By haberlernet NET, public domain.

Particularly in the wake of the 2018 Turkish debt and currency crisis, the Turkish lira plunged in value, inflation skyrocketed, borrowing became more expensive, and loan defaults became commonplace. President Erdoğan looked for answers—and someone to blame. He landed, in no uncertain terms, on interest rates overseen by the Turkish central bank. "The central bank can't take this independence and set aside the signals given by the president," Erdoğan said in a classic example of strongmanism, institutional decline, and desire for direct control over forces beyond his understanding. Unsurprisingly, though some reforms were still implemented by the central bank, Erdoğan's comments did nothing to help the situation and, given that fiat currencies are backed largely by faith in the system they serve, only undermined the Turkish economy on the world stage and continued to erode the lira's value.

Turkey has continued to limp along in the intervening years, and President Erdoğan's rhetoric did not let up. Due to limited improvement, Erdoğan has fired three Turkish central bank governors in less than two years. It is this latest firing—which also seems to have been motivated by political concerns ahead of a presidential election—that has caused the latest currency crisis in Turkey, causing inflation to rise to around 16%, unemployment to hover around 12%, and the lira to lose at least 13% of its value in recent weeks. Turks are struggling and fed up—but isn't this the same situation that led Satoshi Nakamoto to create Bitcoin in the first place?

Warming up to Bitcoin

Indeed, repeated economic shocks and government ineptitude has led to a massive spike in interest in Bitcoin. In just the weekend that the latest central bank governor was replaced, Google searches for "Bitcoin" in Turkey quadrupled. And it's not just interest either: people are walking the walk too. Chainalysis and Reuters found that crypto transactions amounted to TRY 218 billion in February and March of 2021, up from only TRY 7 billion the year before—an astounding 31-fold increase. This suggests that one of Bitcoin's important use cases, as a store of value, is finding real purchase in this country beset by economic woes.

Hüseyin Nalcı, 38, co-owner of the Kırmızı Şimşekler (Red Lightning) teahouse in Çorum, Turkey, where he accepts crypto. By The Guardian.
Hüseyin Nalcı, 38, co-owner of the Kırmızı Şimşekler (Red Lightning) teahouse in Çorum, Turkey, where he accepts crypto. By The Guardian.

But more astounding still, Bitcoin is finding real use as an everyday means of exchange. Even neighborhood tea houses and durum shops are getting in on the action, and young crypto users are finding it to be a natural way to make transactions. What's more, the almost complete lack of regulations around crypto exchanges and crypto taxation in Turkey makes digital currencies attractive even for those who just want to dip their toes in this new form of buying, selling, and investing. And given the notable Turkish diaspora, transferring crypto between family members both inside and outside of Turkey will almost certainly find the easy, border-free nature of crypto to be an upside sooner rather than later.

While it's still early in this latest Turkish currency crisis, we're already seeing how cryptocurrencies like Bitcoin will play an important role in solving it. And given that similar circumstances in Argentina and Nigeria have given rise to thriving crypto communities there, only time will tell how deeply crypto will be ingrained into the everyday life of Turkish citizens.

Cover photo: Hagia Sofia by Pedro Szekely, licensed under CC BY-SA 2.0.

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