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Turkey: Cryptocurrency ban triggers concerns over more regulations

The Turkish government has banned the use of cryptocurrencies as payment for goods and services, leaving investors fearful of further restrictions and transaction taxes
A man holds a physical imitation of a Bitcoin at a cryptocurrency shop near the Grand Bazaar in Istanbul, 17 December 2020 (AFP)
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Ankara

The Turkish government has banned overnight the use of cryptocurrencies and crypto assets to purchase goods and services, via a Central Bank regulation published in the Official Gazette on Friday. 

The Central Bank, in a subsequent press statement, said that “crypto assets entail significant risk” to the interested parties, including creating “non-recoverable losses”.

The decision also bans the use of digital wallets in cryptocurrency transactions.

The regulation, which will take effect on 30 April, pushed Bitcoin down by 2.59 percent to $61,757 on Friday morning.

For the past two years, an estimated one million to three million Turkish citizens have invested in cryptocurrencies and assets to benefit from the Bitcoin rally and protect their savings against annual inflation of up to 16 percent. The daily Turkish transactions in the cryptomarket are valued at over $1bn, with nearly one third of the daily transactions taking place in the Istanbul Stock Exchange.

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The Central Bank listed five main reasons to restrict the use of cryptocurrencies in payments: the transactions were not subject to any regulation or supervision mechanism; they were volatile; they could be used in illegal activities due to their anonymity; digital wallets could be stolen, and the transactions are irrevocable.

'Something foolish'

The regulatory move drew criticism from the leader of the main Turkish opposition party, CHP.

“Another midnight bullying, they cannot get rid of this mentality,” Kemal Kilicdaroglu said in a tweet.

“They insist on doing something foolish. You talk to all stakeholders before making such a decision. Who did you consult on the crypto decision? I will have consultations with every stakeholder about this.”

The move also triggered widespread concerns that the Turkish government could put more restrictions on digital currencies. Fusun Sarp Nebil, a columnist for independent news platform T24, wrote on Friday that speculation was rife about the government’s next moves, which could include taxing cryptocurrency transactions or hardening exchanges with non-local markets.

“Another interesting note is this: [investors] have sold $9.5bn worth of forex in the recent weeks, but in return that didn’t increase the Turkish lira deposits,” she wrote. “Experts believe this money has gone to Bitcoin," she said, adding that the money that has been going steadily to Bitcoin in the past two years might have reached $25bn. "This could also trigger the regulation.”

One local cryptocurrency investor said he was going to move his assets to international cryptocurrency exchanges.

“I'm even considering transferring my assets to cold wallets that could only be accessed through a private key, totally keeping them off the hook,” he said.

Meanwhile, Ihsan Ersan, an economics professor, said on Friday that more regulations that would target the banks on cryptocurrency exchanges could be on the way.