The Turkish lira has become so volatile that the Turks have ditched the local currency in favor of assets that have an even higher reputation for risk: cryptocurrencies.
While the pound depreciated against the dollar in the final quarter of 2021, the volume of crypto trading used in the pound skyrocketed to an average of $ 1.8 billion per day on three different exchanges, according to blockchain analytics firm Chainalysis. These volumes are still small compared to the results of a 2019 survey by the Bank for International Settlements, which found around $ 71 billion in transactions per pound every day, but they are still larger than any of the five. quarters prior to the last.
The Turks especially like the stable currency, which is pegged to the dollar. The pound became the most traded political currency against last fall’s coup, outperforming the dollar and the euro, according to data firm CryptoCompare.
The Turks weathered long periods of economic instability by keeping their money in dollars, euros or gold. The cryptocurrency boom 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 almost 40% against the dollar in early November, but has since fallen more than 10%.
In Istanbul, Turkey’s largest city and economic capital, cryptocurrency advertisements appear on the electric train, billboards, and at one of the city’s two airports. Bitcoin sales shops appeared in the Grand Bazaar, in the alleys where there are also money changers who sell foreign and gold coins.
Crypto has become a paradise
President Recep Tayyip Erdogan caused Turkey’s financial system to falter last fall when he pushed for interest rates to be cut further and further 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.
“Nonsensical policies on interest rates, declining reliance on published inflation statistics, and policy decisions … have made cryptocurrencies a safe haven, even though cryptocurrencies are risky financial assets and volatile, “said Kagan Squirrel, 27. old trader on a stock exchange in northwestern Turkey.
Squirrel said that he started trading Bitcoin in 2017 to make more money. Increasingly, he also sees it as a way to protect his sterling income against inflation. The purchasing power of the pound you earn as an employee of a fabric manufacturing company has declined along with rising prices.
The Turks adopted cryptocurrencies despite the official ban introduced last year on their use as a form of payment in the country. The ban, revealed without notice, “created a traumatic experience in the Turkish crypto community,” said Turan Film, an advisor to Turkish crypto exchange Paribu. The government promised to present a new cryptocurrency law that will soon be sent to the country’s parliament, but the details of the law and how it will affect the trading of cryptocurrencies are not yet known, according to a video.
Cryptocurrencies have become more popular in Turkey and in parts of the developing world where mistrust of government economic policies is high. Nigerians use Bitcoin for payments after there have been drops in the value of their currency and a pious control of access to foreign currencies. El Salvador became the first country to recognize bitcoin as a pass-through currency for a merchant last year, after twenty years in which its economy was pegged to the US dollar.
In Turkey, some of the mistrust extended beyond the pound. Two thirds of Turkish bank deposits are in foreign currency, mainly dollars and euros. Turkish banks are lending some of these dollars to the central bank and the government, which have used them to intervene in currency markets as part of a failed fight to stabilize the pound.
If there had been a panic to withdraw dollars, Turkish banks would have had to recover some of those dollars to meet the demand of depositors, and there are some doubts as to whether the government is able to obtain those dollars. In the worst-case scenario, there are people who fear that the government will force banks to convert dollar deposits into pounds.
This is pushing some people to exchange bank dollars and cash dollars for what are known as stable coins, currencies whose value is close to the value of traditional currencies such as the dollar, some Turkish savings bank holders have said. More than half of the December pound trade included tetra, Chainalysis said.
“Cryptocurrencies give hope to the Turks”
Stablecoins like Teter are also used as a gateway to trading positions in more volatile currencies like Bitcoin and Atherium. Turkish crypto exchange Bitlo saw a surge in the number of new traders in the last quarter as the value of the pound fell, said Asra Alfei, the company’s chief marketing officer.
“The volatility of the Turkish lira and the rise in inflation that has been felt in recent months have led our investors to view cryptocurrencies as a profitable investment in the long term and a hedge against inflation in the short term,” he said.
Aga Tuloui, a 24-year-old student training in salt, walked into Caspicoin, a cryptocurrency shop in the Grand Bazaar, on Monday to find out what the commission was for buying Atherium with her dollar savings. He intends to use Tatar to buy other cryptocurrencies.
“Cryptocurrencies give Turks hope that they are impoverished and want to make money. Turks find it easy money,” he said.
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