At the beginning of 2023, the market for digital assets remained unstable. High volatility (volatility of quotes) of coins and tokens forces the governments of many countries to restrict citizens in the use of cryptocurrencies. Often, news about the ban of virtual assets in different states causes a decrease in bitcoin and altcoin prices. The same thing happened after the restriction of cryptocurrency use in Turkey. The decision on the ban was made on April 16, 2021 by the Central Bank of the Republic. The restrictions themselves came into force only 14 days later.
Legal status of cryptocurrency in Turkey
On April 30, 2021, the ban on the use of digital assets as means of payment began to take effect. At that time, the Central Bank of the Republic of Turkey (CBRT) stated that the use of cryptocurrencies could cause irreparable losses to the state’s economy and its citizens.
The new rules also affected already registered and licensed trading platforms, services and payment systems that worked with virtual money in the country. They lost the ability to provide services for settlement operations.
Chairman of the Central Bank of Turkey Shahap Kavcioğlu assured citizens that digital assets are not completely banned in the country. According to him, the state authorities only want to balance the market of virtual currencies. At the same time, the head of the financial regulator said that the process of creating new bills is already underway.
Turkish President Recep Tayyip Erdogan on December 25, 2021 announced the completion of the first stage of the creation of regulatory rules that will change the legal status of cryptocurrencies in the state. According to the politician, the new legislation is ready for consideration by members of Parliament.
The authorities of the republic are developing a national cryptocurrency (CBDC). With its help, the Central Bank expects to lift the state’s economy, which was in a critical state as of January 6, 2023.
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For the year 2021, the TRY (the national currency of the Republic) has undergone a record inflation rate of 36.08%. The Turkish lira has fallen 142% against the US dollar.
Taxation
As of January 6, 2023, cryptocurrency was not subject to government levies in Turkey. Citizens are not required to pay tax for trading and exchanging digital money. State levies are imposed on:
- Commercial income.
- Profits of the self-employed.
- Income from agricultural activities.
- Wages of employees of different enterprises.
- Income from the purchase/sale of real estate and securities, etc.
Profits from cryptocurrency trading are not included in the listed categories. However, for example, if virtual assets were considered to be a commodity, then profits from trading digital money would be treated as commercial income.
Reasons for the ban
In 2021, the economy of the Republic of Turkey was in a critical situation. The state’s national currency underwent an inflation rate of 36.08% in 12 months. This is the underlying factor on which the authorities relied in banning virtual coins and tokens.
In April 2021, Shahap Kavcioğlu criticized Bitcoin. According to the head of the Central Bank of TR, it is unacceptable that large amounts of electricity are required to mine new BTC coins. Also Cavcioğlu noted the high volatility of Bitcoin, ways to control which do not exist. The Central Bank Chairman was also angered by the fact that transactions in the Bitcoin blockchain cannot be canceled.
In mid-September 2021, Erdogan held a meeting with students. At it, the President “declared war” on the developers of private digital assets. The leader of the country believes that it was they who contributed to the collapse of the Turkish economy.
At the beginning of 2023, the authorities of the republic were still not going to support private digital projects. Erdogan argued his decision with the development and implementation of a national virtual coin.
Closure of Turkish cryptocurrency exchanges
Since April 2021, digital money trading platforms registered in Turkey began to cease operations. After 8 months, at least 3 cryptocurrency exchanges have closed down. The details are presented in the table below.
| Name | Situation Description |
|---|---|
| Thodex | This crypto exchange was founded by Faruk Fatih Ozer. According to the official version of the investigation of the Prosecutor General’s Office, on April 22, 2021, the developer stole $2 billion of clients’ investments and fled to Albania. Immediately after the incident, Ozer was put on an international wanted list. Law enforcement authorities obtained an arrest warrant for the Thodex founder in Albania. Before the incident, the developer of the exchange stated that the site was subjected to a hacker attack, as a result of which its work was stopped for compulsory reasons. In this regard, about 391 thousand users of Thodex lost the opportunity to withdraw money from their accounts. After 8 months, the work of the exchange has not been restored. |
| Vebitcoin | Immediately after Thodex, another Turkish crypto exchange was closed. Its CEO is Ilker Bas. The first news about the closure of Vebitcoin appeared on the Internet on April 23, 2021. Before the incident, the head of the site reported economic difficulties that arose due to a sharp increase in the number of customers. The Financial Crimes Investigation Board (MASAK) started a review of Vebitcoin employees and froze the company’s bank accounts due to the recent experience with Thodex. Some time later, rumors of Ilker Bas’s detention surfaced. They have not been officially confirmed. |
| Coinzo | The management announced the closure of the site on October 13, 2021. After 3 months, the reason for such a decision remains unknown. Users believe that the closure was due to the ban of cryptocurrencies in Turkey. The Coinzo exchange is honest with customers, so the management gave them the opportunity to withdraw their savings within 6 months. Cashing out is available in virtual assets and fiat. |
Prospects for the cryptocurrency market in Turkey
The first test of the digital Turkish lira was conducted in the second half of 2021. Several months later, the results of the test remain unknown.
In 2019, Turkey was ranked first in the ranking of public acceptance of digital assets. According to information from German analytics company Statista, 20% of citizens had coins or tokens at the time. However, the ban on the use of virtual money has slowed its spread in the state. Some users believe that there are few prospects for the cryptocurrency market in Turkey.
Most likely, once the virtual lira is issued, citizens will only be able to use it. Otherwise, it is likely that violators of local laws will be prosecuted by law enforcement.
Frequently Asked Questions
❓ What is CBDC?
The acronym stands for Central Bank Digital Currency. The term commonly refers to a cryptocurrency issued by the central bank of a country.
📲 Why is the Central Bank of TR developing a virtual lira?
With its help, the bank hopes to stabilize the critical economic situation inside the republic. The main purpose of the development is to attract the interest of the citizens of the state to the national currency.
💻 How will the digital lira help to reduce inflation TRY?
With the help of its own coin, the authorities of the country will get a controlled space in the field of cryptocurrencies. The virtual lira will not be a decentralized koin.
🔎 What caused the high TRY inflation?
It was influenced by the unstable situation in the global economy and the soft monetary policy of the Central Bank of TR.
💰 Will there be a tax for the use of virtual lira?
As of January 6, 2023, there is no answer to the question posed. The details of the development of the digital lira and the new draft law regarding cryptocurrencies in Turkey are not yet known to the public.
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Author: Saifedean Ammous, an expert in cryptocurrency economics.
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