Despite “crypto winter”, the use of digital currency remains high in Turkey

ISTANBUL – Since its peak in November 2021, Bitcoin’s value has fallen around 70 percent. The leading cryptocurrency’s latest drop reflects a broader trend of digital tokens, which have collectively lost around $2 trillion over the past 10 months.

Users are calling this bear market a “crypto winter,” but the negative trend has not deterred many traders in Turkey, which makes up one of the world’s most active crypto communities, according to a report published in July by research firm Morning Consult.

The study found that 54 percent of crypto users in Turkey continue to buy or sell digital currencies at least once a month, second only to Nigeria. Ismail H. Polat, a new media lecturer at Istanbul’s Kadir Has University who tracks the sector, estimates that around 10 million Turkish citizens have bought cryptocurrencies at least once.

Polat said the driving factors were “high inflation, of course … and people in Turkey hear the success stories and become eager to buy crypto”, but warned inexperienced traders motivated by quick profits often lose money.

As elsewhere, local interest in digital tokens increased last year along with the value of leading cryptocurrencies, such as Bitcoin and Ether. In Turkey, crypto trading was seen as a way to hedge against high inflation and to defend earnings amid the continued devaluation of the Turkish lira, which has lost about 26 percent of its value against the US dollar this year.

Even with the ongoing steep losses from the crypto winter, traders in Turkey continue to find utility in digital tokens, despite the risks posed by crypto’s inherent volatility and looming government regulations.

Sima Baktas, a lawyer and founder of CryptoFemale Turkiye, an educational platform that holds crypto seminars and workshops, said many Turkish citizens were among the cryptocurrency’s early adopters, but crypto’s popularity increased in recent years due to people’s deteriorating economic outlook and reduced purchasing power.

“If you do your job according to the regulations and pay taxes and follow the law, it becomes impossible to buy a house and a car without the support of your family or third parties,” Baktas told Al-Monitor. “So people try other solutions.”

Baktas noted that the situation was the same for doctors, lawyers and engineers in Turkey whose wages have eroded during a sustained period of high inflation.

“But it’s not just about the economic situation,” Baktas said. “Turkey is the youngest country in Europe and young people are more interested in crypto, which is another reason why crypto is so popular here.”

According to figures from the authorities, the median age in Turkey was 33.1 last year. Baktas said the nation’s millennial or younger majority are both more open to online or mobile banking, as well as alternatives to traditional banking.

While mobile banking apps have seen high adoption rates in Turkey, they are still tied to traditional banks and their transaction fees. To make use of cryptocurrencies, proponents often highlight their low transaction fees on international money transfers.

Fees can be particularly low if both sender and receiver use the same cryptocurrency exchange, such as Binance, the world’s largest exchange site. For money transfers, crypto users often use Tether, a so-called “stablecoin” whose value is tied to the US dollar and is the third most popular digital token by market capitalization, after Bitcoin and Ether. Notably, Tether is also often the top coin in global daily trading volume.

Derya Turker, also known as “Stevedabitcoin”, founder of The Steve Group Tether Turkey Solution Partners, said Tether allows Turkish citizens to protect their money from the lira’s devaluation while facilitating their access to global markets and affordable money transfers.

Turker said that using Tether is generally “much cheaper than any other fiat transaction,” with the word “fiat” referring to currencies backed by governments.

“Using a blockchain like Avalanche or Tron, transaction fees can be as low as five cents of a dollar,” using Tether, Turker told Al-Monitor. “This is especially true for transfers that are micropayments.”

Between 2020 and 2021, data published by Chainalysis also showed that Turkey was a regional leader in the use of crypto to send and receive money from abroad. In addition to web and mobile interfaces, many people in Turkey also use brick-and-mortar crypto exchange shops, which convert currency and offer services on commission.

There is a cluster of about 10 such shops near the eastern entrance to Istanbul’s Grand Bazaar. A store manager, who asked to remain anonymous, said that for overseas money transfers, it is “most logical” to send Tether between two clients on Binance.

“The most you will pay for a $100,000 transfer is $80,” the manager told Al-Monitor. “With a bank, the fee can be more like 3 percent” of the total transfer.

Similar savings can apply to tourists in Turkey, where some ATMs charge up to 7 percent or more for cash withdrawals.

The manager said half of their recent clients were foreigners, mainly from Russia, Ukraine, the US and Afghanistan. Following the Russian invasion of Ukraine, Ukrainians have increasingly used crypto for money transfers abroad and as a result ranked second, behind US citizens, in global crypto usage, according to a Merchant Machine study in August.

The other half of the manager’s clients were Turkish citizens who wanted to move money abroad. Apart from international money transfers, the executive said that Turkish citizens use crypto for day trading, margin trading (which takes advantage of profit and risk) and long-term investments.

“With day trading, some people can make up to $100 or $200 a day,” the manager said. “For Turks, it is good money because of the exchange rate. A hundred dollars has much more value in today’s Turkey.” In the national economic downturn, the cost of living has shot up in recent months, while the minimum wage is currently 5,500 lira (or about $300) a month.

Still, cryptocurrencies were often marketed as hedges against the swings of traditional investments before the current “crypto winter,” where crypto itself has mimicked trends in broader markets and asset classes rather than acting as a counterbalance.

Despite the financial losses absorbed by crypto traders since November 2021, crypto culture seems to be thriving in Istanbul with several events and exhibitions planned throughout the year.

Mixed in with the hype is the usual quirky humor found elsewhere in society, such as one coin named after Boji, the public transport street dog that grabbed headlines in Istanbul last year. There are also the apparent ploys to raise the profile of specific digital tokens, exemplified by a referee’s controversial use of a crypto token during the kick-off ceremony of a popular football match in May.

But there are also signs of government interest in the field, most recently seen in a July meeting between Turkish Finance Minister Nureddin Nebati and Binance CEO Changpeng Zhao. Separately, President Recep Tayyip Erdogan in January called for a state-led study on the metaverse and blockchain technologies, arguing that Turkey should take part in shaping the digital future.

TOGG, Turkey’s domestically produced electric car project, is also exploring blockchain use for smart contracts with Ava Labs, the US-based development team behind the Avalanche blockchain.

Looking at the future uses of crypto in Turkey, Baktas, the founder of CryptoFemale Turkiye, said that the country is currently home to many gaming companies that can adopt crypto tokens in gaming. As examples, she highlighted two blockchain-based games made by Turkey-based teams, Avaxtars and Valhalla, which appear to be in development stages. “If Turkey creates the legal structure, more crypto companies will come to do business here,” Baktas said.

Almost all sources interviewed supported some form of government regulation of cryptocurrency use in Turkey. To date, there is a ban on direct purchases through crypto in Turkey, but not on trading or transferring tokens.

Crypto supporters believe regulations can help synchronize the sector with other financial services and reduce the threat of fraud, highlighted by the arrest in August of Turkey’s founder of the Thodex crypto exchange, who abruptly left the country last year after the exchange went offline with hundreds of millions of dollars in users’ cryptocurrencies disappear along with it.

Observers of the Turkish crypto sector said it is most likely that the government will start taxing exchanges and possibly other services. Few thought that the state would try to crack down on crypto use