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Turkish Lira Falling Highlights Crypto’s Importance as Investors Eye Stablecoins

Last Updated June 26, 2023 10:01 AM
Teuta Franjkovic
Last Updated June 26, 2023 10:01 AM
Key Takeaways
  • Crypto ownership in Turkey surges because of the inflation
  • Local demand for Tether jumped in May after Lira falls 11% against the dollar
  • Michael Saylor proposes Bitcoin to solve Lira problems

Currency devaluation and inflationary strains are some of the biggest dangers threatening the Turkish economy, especially Lira so people are turning to crypto more and more.

Tether, a stablecoin backed by the dollar, saw a spike in local demand in early May ahead of the elections, and it has remained high ever since President Recep Tayyip Erdogan’s victory shook the markets.

Turkish Lira has fared much worse, breaking historic lows in recent days, despite a global crackdown on the asset class and decreasing prices for the largest crypto tokens. In the past week, the Turkish Lira has lost 11% of its value versus the US dollar, as the central bank has scaled back its intervention to support the currency after the referendum.

Stablecoin Demand Is Strong, Tether Reaches Record Trading Volume

The value of the Lira has decreased by 80% since the previous election in 2018, as a result of Erdogan’s unconventional economic measures, which included attempting to contain inflation that reached as high as 80% by cutting interest rates.

Because stablecoins are designed to maintain a constant peg with the US dollar, they are seen as increasingly appealing crypto assets in this context. Data from Kaiko  shows that Turkish Lira transactions made up 10% of all crypto trades in the $1.1 trillion per day market in early June, down from a peak of 18% in May. According to the data source, this compared to 4% at the beginning of 2023.

Dessislava Aubert, an analyst at Kaiko, commented  that despite historically low quantities, stablecoin demand on Turkish marketplaces has remained strong. She also noted that Tether’s share of trading volumes on local markets reached its highest level since 2020 in May.

According to some people familiar with the whole Lira situation, by investing in stablecoins, people are able to keep the value of their wealth in times of high inflation. 

According to data from CoinMarketCap , Tether has a 20% share of trading volumes on BTCTurk, one of the biggest cryptocurrency exchanges in Turkey, compared to 1% on Binance, indicating a substantial demand for the stablecoin in Turkish markets.

Michael Saylor Bullish on Bitcoin Amidst Struggling Lira

In order to save a dull Turkish regional currency, MicroStrategy’s CEO Michael Saylor proposed using digital currencies like Bitcoin. After the Egyptian-American economist and businessman Mohamed El-Erian tweeted about problems facing the Turkish Lira and the government’s limited possibility to act in the markets to strengthen the currency, Saylor answered that crypto is the best option for countries like Turkey.

Saylor, always a strong Bitcoin supporter, believes that conventional fiat currencies like the Turkish Lira and others are susceptible to inflation because of things like government policy and a volatile economy. On the other hand, because there are only 21 million coins in circulation, Bitcoin is unaffected by inflation.

Such an approach was heavily supported by another Bitcoin advocate, Max Keiser, who, four years ago, said that Bitcoin “will become a factor for Turks as hard money becomes hard to come by.”

 

Crypto Ownership in Turkey Rises

According to CoinMarketCap , Turkey had the biggest increase in crypto ownership, with 27.1% from July-September 2021 to July-September 2022,

The Turkish Lira rapidly lost 44% of its value versus the US dollar by the end of 2021. Early in 2022, the nation’s inflation rate  exceeded 30%, and by the end of the year, it was 72.31%. These reasons led the Turks to adopt cryptocurrencies, and daily trading volume averaged $1.8 billion.

The Turkish Lira (TRY) lost 356% of its value against the US dollar in just five years. In 2018, four TRY were equal to one USD. A dollar now has a new all-time high value of about 20 TRY. Due to this, the Turkish Lira is a bad store of value, as Turkey’s historical inflation swings show. On the other hand, Bitcoin rose by 216% in the same five-year period.

What Does a Dollar Milkshake Theory Have to do With Crypto?

According to the Dollar Milkshake Theory, it is the Federal Reserve that controls liquidity in other countries’ economies. For instance, by boosting the US economy through quantitative easing (QE), the Fed exports liquidity and increases domestic inflation. Due to their need for greater rates, foreign investors purchase US Treasuries (T-bills), which are government debt.

As a result, the dollar is stronger relative to other currencies. The USD becomes even more alluring to foreign investors in a feedback loop. Other nations then experience higher volatility and instability as a result of this financial siphoning. One might even confuse this procedure with de-dollarization.

Bitcoin and its community have declared a symbolic war against the old financial system, whereas cryptocurrencies, particularly Ethereum and ERC-20 tokens like stablecoins, want to strengthen the current financial rails. This could imply that Bitcoin and other cryptocurrencies are affected differently by the Dollar Milkshake Theory.

The greatest scenario for Ethereum would be for cryptocurrencies, particularly USD-denominated stablecoins, to become more widely used as a medium of exchange in the real world. The crypto community is allergic to working with governments and big businesses, which is what this will probably need. However, because of a form of “government approval” of the technology, cryptocurrencies are likely to be negatively impacted by any economic downturn.

Absence of Crypto Laws is a Huge Problem

Turkey’s central bank prohibited cryptocurrencies  as a means of payment in 2021, mostly because of the depreciating Lira. In any case, cryptocurrency is still mostly uncontrolled. Turks can still take part in initial coin offers (ICOs), despite the fact that several nations have tightened regulations on them.

This absence of law can result from, for instance, a general lack of initiative on the part of the Turkish government. The global adoption of cryptocurrency is growing faster than efforts by governments to regulate it. In Turkish crypto groups, there is another, more intriguing idea circulating. The Turkish government has refrained from taking harsh action against the industry because it is aware of how important Bitcoin is to a sizeable segment of the population.

Conclusion

Turkish citizens are investing heavily in cryptocurrencies as a result of the falling value of the Turkish Lira. Tether also appears to be Turkey’s preferred cryptocurrency at the moment.

Why? The fact that Tether is a stablecoin, a type of cryptocurrency linked to a particular asset, in this case, the dollar. A stablecoin that is properly set up and open about the assets supporting it is perfect for use in business transactions. Stablecoins, in other words, will oppose the government’s monopoly on money.

Cryptocurrencies are not permitted in Turkey as a means of payment. Such restrictions, however, are never ideal.

While the situation in Turkey is bad, there is inflation worldwide, and people will most probably seek other non-government forms of payment.