Turks Pile Into Bitcoin and Tether to Escape Plunging Lira

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Cryptocurrency adoption in Turkey and parts of the developing world where government economic policies generate significant mistrust

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Turks are particularly enamored of the stablecoin Tether, which is pegged to the dollar. According to data provider CryptoKitties, the fall saw Tether become the most traded government-issued currency against Tether, overtaking the dollar and the euro.

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

In Turkey’s largest city and its commercial capital, Istanbul, advertisements for cryptocurrency exchanges have appeared on trams, billboards and one of the city’s two airports. Shops selling bitcoin have sprung up in the Grand Bazaar, lined up in the nearby streets where traders also sell foreign currency and gold.

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President Recep Tayyip Erdogan has thrown Turkey’s financial system into turmoil and repeatedly pressed for interest rate cuts due to rising inflation. The currency has stabilized somewhat in recent weeks following a government bailout from savers, but local Turks remain wary.

Kanan, a 27-year-old trader in Bursa, said, “Foolish policies about rates, low confidence in published data about inflation and political decisions … made crypto a safe haven, even though crypto is rather risky.” and be a volatile financial asset.” Northwest Turkey.

Mr One said he began trading bitcoin in 2017 to make extra money. Increasingly, they have also seen it as a way to protect their lira income from inflation. The purchasing power of the lira earned from his job in a fabric manufacturer has eroded with higher prices.

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

Cryptocurrencies have grown in popularity in Turkey and parts of the developing world where distrust of government economic policies is high. Nigerians use bitcoin for payments following currency devaluation and have tight controls on access to foreign currencies. El Salvador last year became the first country to recognize bitcoin as legal tender, two decades after its economy was pegged to the US dollar.

In Turkey, the share of disbelief extends beyond the lira. Two-thirds of Turkey’s banking deposits are foreign currencies, mostly dollars and euros. Turkish banks lend some of those dollars to the central bank and government, which have used them to intervene in foreign exchange markets in an unsuccessful fight to prop up the lira.

If there was a rush to withdraw dollars, Turkish banks would need to withdraw some of those dollars to meet the needs of depositors, and there is some question whether the government can source the dollars. In a worst-case scenario, some fear the government could force banks to convert dollar deposits into lira.

According to many Turkish savers, this is prompting some to exchange bank-held dollars and cash dollars, known as stablecoins, cryptocurrencies whose value is pegged to traditional currencies such as the dollar. . Chainalysis said Tether was involved in more than half the transactions against Lira in December.

Stable coins such as Tether are also used as gateways to trade in and out of positions in more volatile coins such as bitcoin and ether. The firm’s chief marketing officer Esra Alpay said Turkish cryptocurrency exchange Bitlo experienced a boom in the number of new traders in the last quarter, as the value of the lira collapsed.

“The volatility of the Turkish lira and rising inflation in recent months has prompted our investors to view cryptocurrencies as a profitable investment in the long term and as a hedge against inflation in the short term,” she said.

Age Tuluy, a 24-year-old student training to be a sailor, entered Caspicoin, a crypto shop in the Grand Bazaar, on Monday to investigate a commission for buying Tether with his US dollar savings. He plans to use Tether to buy other cryptocurrencies.

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

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

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