Turkey is facing a crisis that is not unique to emerging economies: soaring inflation, falling demand for its debt and murderous unemployment rate. Add to that a docile central bank governor indebted to autocratic President Recep Tayyip Erdoğan who is not above installing his son-in-law as finance minister, and you have all the conditions for rampant cryptocurrency speculation.
This speculation came to an abrupt end two weeks ago when Turkey revealed its intention to ban such software-based “digital tokens” as payment from April 30 in an attempt to combat a theft of the Turkish lira. tanking.
This decision frightened investors. A few days after the announcement of the newly installed director of the central bank, Thodex, as well as another exchange platform in Turkey called Vebitcoin, collapsed. Thodex founder Fatih Faruk Özer fled to Albania and a number of his family members were arrested by authorities, state security officials said.
An international manhunt is currently underway to locate Özer, 27, and secure $ 2 billion in digital tokens he allegedly stole from 390,000 users of Thodex, the exchange platform he founded.
Although a social media account in Özer’s name denied claims that he had fled with investor money, Turkish authorities have reportedly issued a “red notice”, an international wanted person alert. When contacted by Fortune, Interpol declined to comment without the consent of Turkish authorities.
Either way, digital tokens are nowhere to be found and investors across Turkey are helpless. Estimates vary for how much they lost.
Aykan Erdemir, senior director of the Turkey program of the Foundation for the Defense of Democracies, said the central bank ban raised concerns that even the holding of cryptocurrencies, a hedge against double-digit inflation and devaluation to read it, is ultimately declared illegal.
“This was basically an attempt by the government to try to control Turkey’s payments ecosystem. Ultimately, Erdoğan’s eyes are on the savings of Turkish citizens, ”he said. in a podcast.
“Cryptocurrency is Turkey’s last frontier. It’s almost as if the last safe haven citizens believe is beyond Erdoğan’s reach.
The developments capped a turbulent start to the year for Turkey in which Erdoğan sacked its hawkish central bank governor, Naci Ağbal, in March just four months after the start of his mandate to fight against runaway inflation, now indexed at 16%.
Many Turks have sought to protect their savings by converting them into digital and physical assets like gold. Agbal’s successor, the country’s fourth monetary policy chief in two years, paradoxically, high rates are in fact responsible for the rise in prices rather than their solution.
But digital currencies have not turned out to be the safe havens they were looking for.
“Whenever someone invests in such highly speculative assets such as cryptos, they must at all times be prepared to face the eventuality of a complete loss of their capital,” said Oliver Geiseler, partner at Capco financial services consulting firm. Fortune.
It's terrible to watch Turkish Lira, We're approaching $/TRY 8.50, which is the pre-Agbal level. What's worrying is this fall has unfolded even as US yields are down, i.e. market negativity is intense. Risk of an overshooting episode is unfortunately elevated. With @UgrasUlkuIIF pic.twitter.com/fTu942rydA
— Robin Brooks (@RobinBrooksIIF) April 24, 2021
Prior to the crackdown, estimates suggested that between $ 1 billion and $ 2 billion in cryptocurrency were traded daily across the world, and Turkey was tied with Peru for fourth with around 16% of the total, according to one. Statista survey recently cited by the World Economic Forum.
A growing number of consumers are hoping to guard against the loss of their purchasing power by diversifying into digital tokens. Proponents argue they offer protection in a world where institutions like the Federal Reserve penalize savers by keeping interest rates at zero and increasing the money supply, in part to ease tensions on state treasuries.
The prices of digital currencies like Ethereum and Dogecoin have recently increased amid increasing social acceptance, with [hotlink]You’re here[/hotlink] even accept bitcoin since this year. Industry insiders warn, however, that the Turkish debacle proves they may not be for amateurs.
Renato Fazzone, of FTI Consulting’s technology practice in Düsseldorf, warned that the explosion of interest in Bitcoin, driven by trends such as those seen in Turkey, could backfire on investors at any time.
“Consumers drawn to the opportunity for quick wins should leave cryptocurrencies alone unless they have studied the issue in depth, as these assets are extremely volatile and lack real regulation,” the CEO said. main. Fortune.
“At the same time, platforms must take into account the responsibility they carry on behalf of their clients, screening them in advance to assess their level of sophistication and risk appetite in order to protect them against serious unintentional mistakes, ”he added.
The Managing Director of the Basel-based Bank for International Settlements (BIS), Agustín Carstens, Bitcoin exploded earlier this year, arguing that it lacked intrinsic value and consumed more electricity than all of Switzerland.
“If digital currencies are needed, central banks should be issuing them,” he said in January.
The BIS, which represents the interests of the Fed, Bank of England and others, warned this month that oversight of cryptocurrencies remains at an infancy stage, with many of the world’s leading economies being still developing an approach to crypto assets.
While the Turkish government, worried about the Lira leaking, may harbor selfish motivations to crack down on currencies beyond its direct control, there are many legitimate regulatory concerns about the double risk of tokens used for money laundering and the financing of terrorism.
In October, the United States’ Financial Crimes Enforcement Network imposed a $ 60 million fine against Larry Dean Harmon, the founder of crypto service providers Helix and Coin Ninja, after the bureau discovered that some of the 1.2 million undocumented transactions involved narcotics dealers, counterfeiters and other criminals.
“There is one principle in banking circles that is particularly important in the context of digital tokens, which is ‘KYC’ – know your customer,” said Geiseler of Capco. “If it turns out that the cryptocurrency you received in a transaction was acquired illegally, you may be considered an accomplice in the worst case.”
It’s not just Turks who are embracing the digital token trend. According to a survey carried out by an American broker [hotlink]Charles Schwab[/hotlink], young British investors are twice as likely to buy an asset like Bitcoin as they are to buy stocks.
“Cryptocurrencies appear to be the flavor of the month,” UK Managing Director Richard Flynn said in a statement suggesting a note of disapproval. “A diversified portfolio, balanced across asset classes and sectors, is a smarter, more time-tested approach.”
The company told analysts last week that it would like to see “more regulatory clarity»Before entering the market.
In the case of Turkey, regulatory clarity came from a partial ban. For now at least, owning digital tokens is still legal even if paying with them is not.
This can only be a cold comfort to the thousands of Turks who have put their money in cryptocurrencies. But investing in unregulated assets that badly exist alongside legal tender issued by the fiat government is not for the faint of heart.
This story was originally featured on Fortune.com