The Central Bank of Turkey announced on April 16 that the country has banned crypto payments in the country, citing the “excessive market volatility” and the lack of regulatory supervision as reasons for the ban. The news shocked the crypto markets, with bitcoin dropped more than 5% shortly after the announcement.
The reasons behind the ban can only be understood in the context of the country’s macro-economy. Turkey is the biggest economy in Middle East, and its GDP per capita ranks no. 45 among all countries in the world. The country saw an economic boom since 2012 due to the stimulus measures from its government, but that also came with a soar in the country’s debt in both public and private sector. The heavy debt had eventually led to a massive devaluation of the country’s currency, Turkish Iira (TRY). At the beginning of 2018, it costed around 4.8 TRY to buy one Euro. However it now costs 9.67 TRY to buy one Euro. TRY has depreciated by around 50% in just 3 years!
As a result of the rapid TRY depreciation, many Turkish people lost faith in their country’s currency. No one wants to hold an asset that quickly lose its value! As people look for alternative currency, many of them turned to crypto currency. In fact, Turkey is the country with the highest crypto currency adoption in the world — one out of five Turkish people whole crypto asset!
The growing adoption of crypto currency has becoming a real headache for the Turkish government. On one hand, the increasing ownership and uses of crypto has weakened central banks ability to influence the economy via monetary policies. On another hand, transactions conducted via crypto are mostly not reported for tax. It potentially threaten the already-weak treasury of the Turkish government. And that explains why the Central Bank is imposing a ban.
The actions from Turkish government has showcased how government would potentially react when the crypto gets increasingly adopted. Many countries, especially those with weak economies and authoritarian governments, would be tempted to follow what Turkey is doing. We can foresee that similar news will be reported as crypto adoption keeps increase across the world. These news would definitely cast short term pressure on the market, but the market will also get increasingly immune to such news. After all, the bans from these weaker countries cannot reverse the global trend of crypto adoption. The countries imposing these bans would eventually found themselves lagged far behind in the new digital world.
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