Turkey Bans Cryptocurrencies, Investors Are Losing a Fortune


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Author: Jeffrey Taylor

Turkey is in the midst of a crisis. Not unlike problems facing other emerging economies, Turkey is seeing out of hand inflation, a rapidly falling demand for its debt, and a high rate of unemployment.

Two weeks ago, what had been speculation and rumor came to an end when plans were revealed to ban digital tokens as a form of payment as of April 30. The stated objective is to combat flight from the Turkish Lira, which is tanking.

Investors are justifiably spooked. In a matter of days after the announcement was made by the Turkish Central bank, exchange platforms Thodex and Vebitcoin collapsed. The founder of Thodex,  Fatih Faruk Özer, has escaped Turkey and is thought to be in Albania. A number of his family members were detained at the time by Turkish authorities.

It is alleged that Özer embezzled over $2 billion in digital tokens from nearly 400 thousand users of the exchange platform. Although this accusation has been denied, authorities in Turkey have reportedly issued an international wanted person alert.

Investors are Distraught

Regardless, digital tokens have disappeared from Turkey and throughout the country, investors are distraught. To date, there is no firm estimate for how much has been lost.

The senior director for the Foundation for Defense of Democracies believes the central bank has incited fear that even holding crypto as a hedge against rampant inflation and currency devaluation may eventually be declared illegal.

Director Erdemir sees the move as an attempt to control the payment ecosystem, believing that the president of the country has his eye on the savings of citizens. Erdemir sees crypto as the final frontier for Turkey, the last possible safe haven that Turks believe to be out of reach of the president.

The Year Has Been Turbulent

So far, 2021 has been turbulent for the country. President Erdoğan dismissed the central bank governor last month, only four months into the job. The reason given, the governor was clamping down on inflation, now at 16 percent.

With the purchasing power of the Lira rapidly falling, many Turks sought to protect their savings by converting them into gold as well as digital assets. However, digital assets did not prove to be the safe haven the Turkish people were looking for.

Oliver Geisler, partner at Capco, a financial services consultancy has been quoted as saying, “people must be prepared to deal with the possibility of loss when they invest in highly speculative assets, of which crypto is one.”

Before the crackdown in Turkey, the country was in a virtual fourth place tie with Peru, with about 16 percent of daily trades, which amount to as much as $2 billion daily.

An ever-increasing number of people are considering digital tokens as a way to hedge against the loss of purchasing power. Advocates of this approach believe that digital assets offer far more protection against such things as the Fed penalizing those who save money by keeping interest rates at or near zero and expanding the money supply.

Speculation

Amid growing acceptance, the prices for digital currencies such as Ethereum and Dogecoin have surged. Tesla has gone so far as to accept Bitcoin from car purchasers.

However, industry insiders are warning amateurs that interest in Bitcoin can backfire on investors, citing what has recently happened in Turkey.

Renato Fazzone of FTI Consulting in Germany suggests consumers enticed by the potential of quick gains and high rewards might want to leave crypto aside unless they have spent considerable time gaining insight into the issue. Fazzone said, “These assets are very volatile and lack regulation.”

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Jeffrey Taylor is a retired mechanical engineer who has an interest in all things financial, including emerging markets and cryptocurrencies.