WSJ: Turks Flock to Bitcoin and Tether to Escape the Collapsing Lira

According to an article published today by the Wall Street Journal, cryptocurrencies are gaining popularity in Turkey and parts of the developing world, where the government’s economic policies have sparked a great deal of distrust. The Turkish lira has become so volatile that Turks have ditched the local currency for riskier assets: cryptocurrencies.

While the lira plummeted against the U.S. dollar in the last quarter of 2021, cryptocurrency transactions using the lira averaged $1.8 billion per day on three exchanges, according to blockchain analytics firm Chainalysis. Those volumes are still modest compared with the findings of a 2019 Bank for International Settlements (BIS) survey that found around $71 billion in lira transactions per day, but even that is still more than any of the previous five quarters. More than a quarter.

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The article wrote that Turks particularly like the dollar-pegged stablecoin Tether.

Turks have long weathered economic turmoil by holding their funds in dollars, euros or gold. The rise of cryptocurrencies in recent years has provided a new set of tools for storing wealth, albeit with far greater volatility. The lira has lost 40% of its value against the dollar since September. Bitcoin initially rose nearly 40 percent against the U.S. dollar by early November, but is now down more than 10 percent.

In Istanbul, Turkey’s largest city and commercial capital, advertisements for cryptocurrency exchanges have appeared on trams, billboards and airports. In the Grand Bazaar, shops selling bitcoin have sprung up.

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Last fall, Turkish President Recep Tayyip Erdogan pushed through multiple rate cuts amid soaring inflation, throwing Turkey’s financial system into turmoil. The currency has stabilized in recent weeks after the government bailed out savers, but local Turks remain cautious.

Kağan Şenay, a 27-year-old trader in Bursa, northwestern Turkey, said: “Meanwhile policies on interest rates, declining trust in published statistics on inflation and political decision-making … make cryptocurrencies a safe haven, Even though cryptocurrencies are quite risky and highly volatile financial assets.”

Şenay said he started trading bitcoin in 2017 to earn extra income. He also increasingly sees it as a way to protect his lira income from inflation.

Turks have embraced cryptocurrencies despite an official ban last year banning their use as a form of payment. Turan Sert, an advisor to Turkish cryptocurrency exchange Paribu, said the ban, announced without warning, “brought a painful experience to the Turkish crypto community.”

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Cryptocurrencies are gaining popularity in Turkey and parts of the developing world with high levels of mistrust of government economic policies. Nigerians use bitcoin for payments after currency devaluation and strict controls over access to foreign currency. El Salvador last year became the first country to recognize bitcoin as legal tender after pegging its economy to the U.S. dollar for 20 years.

In Turkey, part of the distrust goes beyond the lira. Two-thirds of bank deposits in Turkey are in foreign currencies, mainly dollars and euros. Turkish banks lent some of those dollars to the central bank and the government, which used them to intervene in foreign exchange markets to prop up the lira, without success.

In a rush to withdraw dollars, Turkish banks will need to withdraw some of the dollars to meet depositors’ needs, and there are doubts about the government’s access to those dollars. In a worst-case scenario, some fear the government could force banks to convert dollar deposits into lira.

According to several Turkish depositors, this has prompted some to exchange U.S. dollars held by banks for so-called stablecoins, cryptocurrencies whose value is pegged to traditional currencies such as the U.S. dollar. In December, more than half of lira transactions involved Tether, Chainalysis said.

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Stablecoins such as Tether are also used as a gateway to trade positions in volatile coins such as Bitcoin and Ethereum. Esra Alpay, chief marketing officer of Turkish cryptocurrency exchange Bitlo, said the number of new traders increased last quarter as the lira depreciated.

She said: “The volatility of the Turkish lira and rising inflation in recent months have led our investors to view cryptocurrencies as a profitable investment in the long-term and a hedge against inflation in the short-term. .”

Ege Tuluay, 24, is a student in training as a seafarer. He walked into Caspicoin, a crypto store in the Grand Bazaar, to check the commissions for buying Tether with his dollar savings. He plans to use Tether to buy other cryptocurrencies.

“Cryptocurrency brings hope to the Turkish people, and to the Turks, it seems like an easy money to earn,” he said.

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