Turks cram into Bitcoin and Tether to escape plunging lira

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The Turkish lira has become so volatile that the Turks have abandoned the local currency for assets with an even riskier reputation: cryptocurrencies.

As the pound frayed against the dollar in the last quarter of 2021, cryptocurrency trading volumes using the pound jumped to an average of $ 1.8 billion per day on three exchanges, according to the blockchain analytics company Chainalysis. These volumes are still modest compared to the results of a 2019 Bank for International Settlements survey that found around $ 71 billion in lira transactions per day, but still more than any of the five. previous quarters.

Turks are particularly in love with tether stablecoin, the value of which is pegged to the dollar. According to data provider CryptoCompare, the pound became the most widely traded government-issued currency against the tie this fall, overtaking the dollar and the euro.

Turks have long weathered times of economic turmoil by keeping their money in US dollars, euros, or gold. The rise of cryptocurrencies in recent years has presented a new group of instruments in which to store wealth, albeit much more volatile. Since September, the pound has lost 40% of its value against the dollar. Bitcoin initially jumped nearly 40% against the dollar in early November, but is now down more than 10%.

In Istanbul, Turkey’s largest city and its commercial capital, advertisements for cryptocurrency exchanges appear on trams, billboards and one of the city’s two airports. Stores selling bitcoin have sprung up in the Grand Bazaar, tucked away in alleyways near places where traders also sell foreign currency and gold.

Stores that sell bitcoin are now part of Istanbul’s Grand Bazaar. Photo: Chris McGrath / Getty Images

President Recep Tayyip Erdogan plunged Turkey’s financial system into turmoil last fall by advocating repeated interest rate cuts in the face of soaring inflation. The currency has stabilized somewhat in recent weeks after the government bailout of savers, but local Turks remain wary.

“Insane rate policies, declining confidence in published inflation statistics and policy decisions… have made cryptos a safe haven, even though cryptos are rather risky and volatile financial assets,” Kağan Şenay said. , a 27-year-old trader in Bursa in northwestern Turkey.

Mr Şenay said he started trading bitcoin in 2017 to earn extra money. Increasingly, he also saw it as a way to protect his lira income against inflation. The purchasing power of the lira that he earns from his work at a fabric producer has diminished along with the rise in prices.

Turks have embraced cryptocurrencies despite an official ban introduced last year on their use as a means of payment in the country. The ban, which was unveiled without warning, “created a traumatic experience in the Turkish cryptocurrency community,” said Turan Sert, advisor to Turkish cryptocurrency exchange Paribu. The government has promised that a new cryptocurrency law will soon be sent to the country’s parliament, but there are few details on its impact, according to Sert.

Cryptocurrencies have gained popularity in Turkey and in parts of the developing world where distrust of government economic policies is high. Nigerians use bitcoin for payments after currency devaluations and tight control over access to foreign currency. Last year, El Salvador became the first country to recognize bitcoin as legal tender, after two decades of an economy tied to the US dollar.

In Turkey, part of the mistrust extends beyond reading it. Two-thirds of Turkey’s bank deposits are in foreign currencies, mainly dollars and euros. Turkish banks are loaning some of these dollars to the central bank and the government, which have used them to intervene in forex markets in an unsuccessful battle to support the lira.

If there was a rush to withdraw dollars, Turkish banks would need to recover some of those dollars to meet depositors’ needs, and one wonders if the government could get hold of the dollars. In the worst-case scenario, there are concerns that the government will force banks to convert dollar deposits into lira.

This prompts some to exchange bank-held dollars and cash dollars for so-called stablecoins, cryptocurrencies whose value is tied to traditional currencies such as the dollar, according to several Turkish savers. More than half of the transactions against the lira in December involved ties, Chainalysis said.

Stable coins such as tether are also used as a gateway to trade positions in more volatile coins such as bitcoin and ether. Turkish crypto exchange Bitlo saw a surge in the number of new traders in the last quarter as the value of the lira plummeted, said Esra Alpay, the company’s chief marketing officer.

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“The volatility of the Turkish Lira and the rise in inflation observed in recent months have led our investors to view cryptocurrency as a profitable long-term investment and as a hedge against short-term inflation,” a- she declared.

Ege Tuluay, a 24-year-old student in training to be a sailor, walked into Caspicoin, a crypto store in the Grand Bazaar, on Monday to verify the commission for the tether purchase with his savings in US dollars. He plans to use the tether to purchase other cryptocurrencies.

“Cryptocurrencies offer hope to Turks because they are broke, so they want to make money. It seems like easy money for the Turks, ”he said.

Soaring inflation in Turkey, where the rate is above 20%, has caused economic turmoil after years of strong growth. The country is serving as a warning as the Federal Reserve and other central banks grapple with rising inflation during the economic recovery from the pandemic. Photo: Sedat Suna / Shutterstock

Write to Caitlin Ostroff at [email protected] and Jared Malsin at [email protected]

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