Turkey: Crypto hub between Eurasia and Arabia?

Turkey has now become a notable crypto hub – and the Turkish Lira, depending on estimates, is as significant in the global crypto market as the Euro. Enough reason to take a closer look at the crypto economy of the country.

One way to measure the importance of a country in crypto is to estimate what share of its fiat currency has in the global trading volume.

Even though results vary depending on estimations, Turkey is one of the top locations in the crypto economy by this metric. According to different reports, the trading volume in Turkish Lira ranks between fourth and sixth globally, sometimes just ahead of, sometimes just behind the Euro.

Key Data of the Turkish Crypto Market

According to Kaiko Research, the market share of the Turkish Lira in crypto reached an all-time high of 19 percent in June. The cumulative annual volume reached $95 billion by July of this year, which roughly corresponds to the total sales of 2023. Since 2022, the Lira has been the fourth strongest fiat currency in the crypto market after the Dollar, the Korean Won, and the Euro. In June, the Lira even briefly surpassed the Euro.

Not every statistic agrees exactly with this, but none doubt that Turkey has established itself as a crypto hub in the region.

Since the end of 2020, the Turkish market has changed significantly. Previously, the Turkish exchange BTCTurk held 95 percent of the market share, but now it’s only about 13 percent. The new ruling market king is the large international exchange Binance, which has aggressively entered the Turkish market since the end of 2020 and quickly introduced new trading pairs for the Lira.

Most important is clearly the trading with USDT, or Tether Dollar. In 2024 alone, this amounted to $22 billion. Surprisingly, this is followed by meme coins like Pepe, Floki, Shiba, Bonk, and then, with little gap, Bitcoin. Turkish users apparently prefer to save in Dollars rather than Bitcoin and speculate more on meme coins than on other cryptocurrencies.

International exchanges such as Gate.io, KuCoin, and OKX have entered the market but struggle to gain significant market shares.

Many Tech-Savvy Young People

Kaiko attributes the growing role of the Turkish Lira partly to the high inflation in Turkey and partly to large exchanges like Binance having banking issues with British Pounds and Australian Dollars. It’s not that the Lira is getting stronger, but that the others are getting weaker.

However, aside from these „macroeconomic“ or external factors, the vibrant crypto scene in Turkey also plays a role. According to Kaiko, half of the population has invested in cryptocurrencies, including many tech-savvy or „unbanked“ young people.

Even the „International Trade Administration“ (ITA), a U.S. government information site for companies „to compete in the global marketplace“, recommends engaging with the Turkish market. Although Turkey banned the use of cryptocurrencies as a payment method in 2021, instead of prohibiting it, the country now focuses on regulation and taxation.

With the MTP program, the government in Ankara plans to strengthen digital transformation between 2024-2026, including through blockchain and cryptocurrencies. This outlook and the strong demand from the population make, according to the ITA, „Turkey a key player in the global markets for blockchain and cryptocurrencies, attracting foreign investments.“

Inflation Reaches a Record

One can optimistically explain the growth in Turkey through a self-sustaining crypto market. But it can also be „macroeconomically“ justified by inflation, the predominant monetary process in Turkey.

The Turkish Lira has fallen by almost 20 percent against the Dollar over the past 12 months. This continues a decline that has been devaluing the Lira piece by piece for years. Over the past five years, the Lira has lost more than 80 percent, and since 2010 even 95 percent. It is currently one of the „shitcoins“ among global fiat currencies.

In July, the inflation rate fell slightly to 62 percent. In June, it was nearly 72 percent, and in May, it peaked at 75 percent.

The high inflation had a peculiar effect: many tourists, including those from Turkey, vacationed in Greece because it was cheaper there. A tourism association director blames the government: by cracking down on foreign currencies, it has overvalued the Lira despite the inflationary environment.

Because the Lira stands higher due to trading restrictions than it should, prices, even measured in Euros, are rising unusually high. Prices for hotels, services, gastronomy, and entrance fees to sights are exploding. Meals and drinks for five people can reportedly cost up to $600, five cups of ice cream up to 30, and entrance to ancient Ephesus up to 40 Euros. No wonder Greece is cheaper.

But there are also signs that the Turkish Lira might be finding its way out of its slump. Thanks to high interest rates of about 50 percent, Turkish Liras are in demand in financial markets. Hedge funds and other investors have invested around $24 billion in Lira since last October in the hope that inflation will subside.

After long rejecting conventional monetary economics at the behest of the Erdogan government, the central bank has been trying for about a year to reduce the inflation rate by accumulating hard currencies and keeping interest rates high. The first successes are within reach, with the central bank estimating an inflation rate of „only“ 43 percent by the end of this year.

Trade with Russia and Financial Sanctions

Besides high inflation, the Turkish economy suffers from sanctions against Russia. Turkish firms had long been able to trade with Russia thanks to Turkey’s neutrality. They could even significantly increase imports from and exports to Russia. This also raised suspicions that Turkey was a hub for sanctions evasion – or at least profited from it.

Both the USA and the UK sanctioned individual Turkish companies because of this. But only since the USA introduced „secondary“ sanctions have many companies involved in Turkish-Russian trade fallen into liquidity shortages. Financial institutions under US jurisdiction are not allowed to have indirect contact with companies that export goods to Russia that could also be used for the war economy. Turkish banks fear losing access to the Dollar market, making it difficult to accept payments for exports. This particularly affects the machinery industry.

It is hard to say to what extent cryptocurrencies play a role here. As a hub between Eurasia and Arabia, Turkey could both play a role in circumventing sanctions against Russia and against Iran, as well as Islamist terrorist organizations. For instance, the state-owned Halkbank is currently under indictment for allegedly contributing to laundering oil and gas supplies from Iran.

There are reports that various terrorist groups, such as the Islamic State, used intermediaries in Turkey to handle cash, apps, and cryptocurrencies to smuggle money. But overall, there are very few and outdated reports that suggest a movement towards cryptocurrencies.

Nevertheless, the government is tightening the screws. Until July, crypto trading in Turkey took place in a legal gray area, without legal certainty on the one hand and without reliable anti-money laundering measures on the other. Therefore, until June, the country was still on the gray list of the Financial Action Task Force (FATF) for not acting decisively enough against money laundering. However, the international body has now recognized that Turkey is making progress.

However, the regulation of the crypto sector is still considered insufficient. This could change with a recently passed law requiring crypto companies to register with the capital markets authority.