Turks Pile Into Bitcoin and Tether to Escape Plunging Lira

The Turkish lira has become so volatile that Turks have given up their most risky and reputable asset: the local currency for cryptocurrency.

According to blockchain analysis firm Chainalysis, the lira was unleashed against the dollar in the last quarter of 2021, but lira trading volumes jumped to an average of $1.8 billion per day on three exchanges. rice field. These transaction volumes are still modest compared to the 2019 survey, where the Bank for International Settlements found about $71 billion in lira transactions per day, but still higher than any of the previous five quarters.

Turks are particularly obsessed with stablecoin pegs whose value is fixed in dollars. According to data provider CryptoCompare, this fall the lira became the most traded currency issued by the government against Tether, overtaking the dollar and the euro.

Turks have long weathered the wave of economic turmoil by keeping money in US dollars, euros or gold. The rise of cryptocurrencies in recent years, although more volatile, provides a new set of means for storing wealth. Since September, the lira has lost 40% of its value against the dollar. Bitcoin initially rose nearly 40% against the dollar by early November, but is now down more than 10%.

In Istanbul, Turkey’s largest city and commercial hub, advertisements for cryptocurrency exchanges appear on trams, billboards, and one of the city’s two airports. Stores selling bitcoin line the Grand Bazaar, hiding in nearby alleys where traders sell foreign currency and gold.

Stores selling Bitcoin are now part of the Grand Bazaar in Istanbul.

Chris McGrath / Getty Images

President Recep Tayyip Erdogan confused the Turkish financial system last fall, calling for frequent interest rate cuts in the face of rising inflation. The currency has stabilized somewhat in recent weeks after the government bailed out savers, but local Turks remain concerned.

“Senseless policies about interest rates, declining confidence in published statistics on inflation and political decisions… Crypto has become a safe haven, despite being a rather risky and volatile financial asset,” said Kağan Şenay, a 27-year-old trader. In Prusa, northwest Turkey.

Sheney said he started trading Bitcoin in 2017 to earn more money. Increasingly, he sees it as a way to protect his lira income from inflation. The purchasing power of the lira, which he had gained from his work as a dough producer, declined as prices rose.

Turkey adopted cryptocurrencies, although their use as a domestic payment method was officially banned last year. Turan Sart, a consultant for Turkish crypto exchange Parisb, said the ban, which was revealed without warning, “created a traumatic experience for the Turkish crypto community.” The government has promised to send the new crypto law to Parliament soon, but Mr Sart says there are few details about its implications.

Cryptocurrencies are becoming more and more popular in some developing countries as there is a great deal of mistrust in Turkey and the economic policies of the government. Nigerians use Bitcoin for payments after currency devaluation and strict control over access to foreign currencies. El Salvador became the first country to recognize bitcoin as a fiat currency last year, 20 years after the economy was pegged to the US dollar.

In Turkey, some distrust goes beyond the lira. Two thirds of bank deposits in Turkey are in foreign currencies, mainly dollars and euros. Turkish banks loaned some of these dollars to the central bank and the government, which they used to intervene in the foreign exchange market in a failed battle to prop up the lira.

If withdrawing dollars is in a hurry, Turkish banks will need to reclaim some of those dollars to meet the needs of depositors, and the question is whether the government can raise the dollars. In a worst-case scenario, some fear the government will force banks to convert dollar deposits into lira.

According to some Turkish savers, it is the exchange of dollars and cash dollars held by banks for what is known as cryptocurrencies whose value is fixed in traditional currencies such as fixed coins and dollars. We encourage. According to Chainalysis, more than half of December’s transactions with Lira are related to the peg.

Stable coins such as tethers are also used as gateways to trade in and out of the most volatile currency positions such as Bitcoin and Ether. Esra Alpay, the company’s chief marketing officer, said that Turkish crypto exchange Bitlo saw an increase in the number of new traders in the last quarter as the lira appreciated.

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“The rise in Turkish lira volatility and inflation seen in recent months has led investors to view cryptocurrencies as a profitable long-term investment and a short-term inflation hedge.” She said.

Iggy Toloway, a 24-year-old student who has trained to become a sailor, visited Caspicoin, a cryptocurrency store in the Grand Bazaar, on Monday to find out the fees for buying ropes with savings in US dollars. He plans to use Tether to buy other cryptocurrencies.

“The cryptocurrency is broken and it gives hope to the Turkish people and they want to make money. It seems that money is easy for Turks.”

Turkey’s high inflation, with interest rates above 20%, has led to economic turmoil after years of widespread growth. The state acts as a warning as the Federal Reserve and other central banks battle 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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