Turkish inflation and lira woes make crypto the big softener

Despite the Ukraine war, 2022 will most likely go down in history as the year of inflation. After decades of below 5% inflation in the US and EU, prices have risen by around 9% in both areas, driven mainly by energy and food supply shocks (not to mention quantitative easing).

But as bad as 9% is for economies that have experienced 2% inflation or lower for many years, it is still not as bad as the inflation that is ravaging the Turkish economy. Newly published official figures put year-on-year inflation in Turkey at 80%, while unofficial measures suggest real inflation topped 140% as recently as April.

Such startling numbers have hit Turkish residents hard, but many have found a fairly new means of mitigating the impact of inflation: cryptocurrency. Yes, while Turkey’s reputation as an undemocratic nation might suggest that crypto is not welcome in the Eurasian nation, it has one of the highest cryptocurrency ownership rates in the world, showing that bitcoin is used for more than just risky speculation.

Double Digit Inflation = Cryptocurrency Adoption?

Turkey’s official consumer price index rose 80.2% year-on-year in August, up from an already high 79.6% in July. This represents the first time official inflation has exceeded 80% since 1998, and it also represents the highest rate recorded during President Recep Tayyip Erdoğan’s nearly 20-year rule.

In Turkey’s case, loose monetary policy is generally blamed for rampant inflation, with Erdoğan refusing to raise interest rates to a level where they would potentially suppress price increases. That said, the government claims that inflation will start to fall towards the end of the year.

“In the months ahead, we will witness inflation losing even more momentum,” Nureddin Nebati, the country’s finance minister, wrote on Twitter. “We will drive high inflation out of these countries, never to return.”

Whatever will happen in the future, inflation is already biting ordinary Turks, and has been for years. This is evident in the cryptocurrency ownership data, with figures presented by Statista showing that 20% of the population owned or had owned crypto in 2019, rising to 25% in 2021.

What is interesting about global cryptocurrency ownership data is that it highlights how such ownership is generally highest in nations facing similar strains as Turkey. That is, inflation drives people towards bitcoin and other cryptocurrencies as a means of preserving (or increasing) what modest wealth they have.

Consequently, Turkey has one of the most thriving cryptocurrency markets in the world, although the government has tried to curb it in various ways in recent months (so far without success).

Perhaps one of the clearest signs of how busy the Turkish crypto market is came in December 2021, when data from Chainalysis and Kaiko revealed that the nation’s borders saw around one million cryptocurrency transactions per day.

Where Turkey and cryptocurrency will go from here

Meanwhile, people on the ground are confirming that they have invested in bitcoin and other cryptocurrencies precisely because of the Turkish lira’s woes.

“If my savings are in lira, they lose value,” said Izzet Emre Ari, a twenty-something computer engineer who spoke to Reuters in 2021.

Such is the momentum behind cryptocurrency trading in Turkey that some observers in the country have spoken of a process of “cryptolization,” as locals turn to crypto as a means of preserving wealth.

“In the past there was dollarization, which means that to avoid fluctuations in their currency, people kept their assets in dollars,” said Turan Sert, an adviser to the Paribu stock exchange in Turkey, who spoke to Al Jazeera in January. “Now the recent trend is called cryptoization.”

Even more recently, industry figures in Turkey suggest that 2022’s bear market hasn’t done too much to dampen Turks’ enthusiasm for crypto. This is because, while BTC has fallen 71% since its all-time high of USD 69,000 in November, the Turkish Lira has fallen even harder.

“The trading volume [in the cryptocurrency market] is high in Turkey, the demand is high, because we want to protect our money against high inflation and high interest rates. There are 5.5-6 million Turks who have a cryptocurrency account in the country, and if you include family members, this is something that interests about 10-12 million people,” said consultant and author Vedat Guven, who was interviewed by German state-owned news. broadcaster DW in May.