WSJ: Turks Pour into Bitcoin and Tether to Escape Plunging Lira

Author: Caitlin Ostroff, Jared Malsin

Compiled by Amy Liu

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

While the lira plummeted against the dollar in the last quarter of 2021, cryptocurrency trading volumes 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 a 2019 survey by the Bank for International Settlements (BIS), which found that about $71 billion in lira was traded daily, but even so, they are still more than in any of the previous five quarters.

The article states that Turks are particularly fond of Tether, a stablecoin pegged to the US dollar.

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

In Istanbul, Turkey’s largest city and commercial capital, ads for cryptocurrency exchanges appear on trams, billboards and at the airport. In the Grand Bazaar, shops selling Bitcoin have sprung up.

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

“The meaningless policies regarding interest rates, the decline in trust in published statistics on inflation and political decisions ... make cryptocurrencies a safe haven, even though they are fairly risky and volatile financial assets,” said Kağan Şenay, a 27-year-old trader in Bursa, northwestern Turkey.

Şenay said he began 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 on using them as a form of payment. Turan Sert, an advisor to Turkish cryptocurrency exchange Paribu, said the ban was announced without warning and “created a painful experience for the Turkish cryptocurrency community.”

Cryptocurrencies are growing in popularity in Turkey and parts of the developing world where distrust of government economic policies is high. Nigerians are using Bitcoin for payments following currency devaluation and tight controls on 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, some of the distrust extends beyond the lira. Two-thirds of bank deposits in Turkey are in foreign currencies, mainly dollars and euros. Turkish banks lend some of those dollars to the central bank and the government, which use them to intervene in foreign exchange markets in an unsuccessful attempt to prop up the lira.

If there is a rush to withdraw dollars, Turkish banks will need to take back some of the dollars to meet depositors' needs, and it is questionable whether the government can obtain these dollars. In the worst case, some people worry that the government may force banks to convert dollar deposits into lira.

That’s prompted some to swap dollars held in banks for so-called stablecoins, cryptocurrencies whose value is pegged to traditional currencies like the dollar, according to several Turkish depositors. In December, more than half of all lira transactions involved Tether, according to Chainalysis.

Stablecoins such as Tether are also used as a gateway to trade positions in more volatile tokens 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.

“The volatility of the Turkish lira and rising inflation in recent months has led our investors to view cryptocurrencies as a lucrative investment in the long term and as a hedge against inflation in the short term,” she said.

Ege Tuluay, 24, a student training to be a seafarer, walked into Caspicoin, a crypto store in the Grand Bazaar, to check the commission for buying Tether with his U.S. dollar savings. He planned to use Tether to buy other cryptocurrencies.

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