Alejandro Arrieche
Rampant inflation and a domestic currency losing roughly half of its value so far this year are the most prominent reasons why residents of countries within the Middle East like Turkey are increasingly turning to cryptocurrencies.
Even though the crypto winter has ravaged the space this year, causing a 58.2% loss since the year started for Bitcoin (BTC) alone and even sharper declines in the so-called altcoin segment, crypto adoption in Turkey does not seem to be stopping.
A report from Chainalysis that covered the period from June 2020 to June 2021 indicated that the Middle East region accounts for 7% of the total value received in cryptocurrencies globally.
However, the region experienced a 1,500% jump in the amount of remittances compared to the previous year with $271.7 billion worth of cryptocurrencies being sent to countries in that corner of the world.
Turkey appears to be leading crypto adoption in the continent as around $130 billion worth of crypto – almost 70% of the total cited above – went to the country headed by President Recep Tayyip Erdoğan.
Turkish Government Unorthodox Monetary Policy Fuels Inflation
The main reason why Turkish are adopting cryptos is the elevated inflation levels that the country has been experiencing for years – a situation that diminishes the purchasing power of the lira.
Since the year started, the lira has lost nearly 28% of its value while inflation in August surged to a new record level of 80.1% – the highest annualized reading in at least 24 years.
The government has refused to take drastic measures to curve the advance of prices within the economy and President Erdoğan has instructed the country’s central bank multiple times to either keep interest rates unchanged or reduce them.
In a shocking decision made last month, the central bank reduced its benchmark interest rate by 100 basis points to 13%, a move that surprised analysts and market participants as lower rates tend to increase an economy’s monetary supply and may lead to even higher inflation.
In light of the government’s refusal to take action to curve inflation, residents of Turkey have found in cryptocurrencies an escape route that allows them to save money in hard currency via stablecoins and possibly produce capital gains when market conditions are favorable.
“Cryptocurrencies promise additional income or a potential escape from this crisis. That’s why they are pretty popular”, commented Aydin Can Gür, a crypto asset manager based in the country to reporters from The New Arab.
Investing in Crypto in Turkey is Not Without Risks
Investing in crypto is hardly a walk in the park. Volatility is perhaps the first risk that Turkish investors must face when turning to the crypto markets as prices can fluctuate wildly during relatively short periods.
This year has been one of the best examples of how things can quickly go south in this up-and-coming space. In this regard, data from CoinMarketCap shows that the market capitalization of all cryptocurrencies has dropped by nearly 55% since the year started as macroeconomic conditions across the world have deteriorated and this has prompted investors to adopt a more cautious attitude toward cryptos and other high-risk assets.
Moreover, some prominent incidents like the implosion of the Terra ecosystem, an event that caused losses exceeding $60 billion for those who were exposed to the now worthless LUNA and UST tokens, and cyber attacks have also been quite harmful to the global investment community.
Finally, Turkey experienced its own domestic crypto exit scam after the founder of the prominent exchange Thodex fled the country in April 2021 defrauding roughly 400,000 users who relied on its platform to transact with digital assets. He was apprehended by Albanian authorities days ago and will be soon extradited to his home country.
In the eye of the Turkish government, cryptos are illegal and cannot be used as mean of payment. However, they have not banned individuals from possessing and transferring these assets and, as long as that remains unchanged, investors may continue to rely on these digital tokens to protect their money from the claws of inflation and currency devaluation.
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This article was written for Business 2 Community by Alejandro Arrieche.
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