Prelude? Turkey imposes crypto ban not without reason

Still trading at new record highs last week, the blazing rally in cryptocurrency markets stalled on Friday after Turkey announced it was banning Bitcoin for domestic payment and other transaction purposes.

Trading at new record highs last week, the stellar rally in cryptocurrency markets stalled on Friday after Turkey announced it would ban Bitcoin for domestic payment and other transaction purposes.

The ban will take effect from April 30.

Given the ongoing turmoil in Turkish financial and capital markets, it is not difficult to draw a connection between this decision made and hopes of maintaining overall confidence in the Turkish lira.

Turkish companies that hire themselves out as service providers for payment processing and/or electronic digital transfers will also be prohibited from processing transactions that are based on digital cryptocurrencies as of the aforementioned effective date.

In this way, the government in Ankara will henceforth make it impossible for droves of Turkish online merchants to deliver customer orders in exchange for payment via cryptocurrencies.

The decision probably came as a blow to a large number of these merchants, who had hoped to circumvent the use of the lira, which fluctuates massively and continues to depreciate in comparison with other international currencies (especially gold), by including cryptocurrencies.

However, this development does not seem to have left the banking system in Turkey unscathed. The Turkish central bank commented on the upcoming ban on cryptocurrency transactions that there was a lack of supervision and unsatisfactory regulation in this area.

Moreover, the danger in terms of potential criminal activity in this area was growing, while volatility was very high, they added. Over the past weeks and months, has the Turkish central bank perhaps taken a look at the volatility and fluctuation in lira trading?

Comparing the Turkish lira over a longer period of a few years with the U.S. dollar, the euro or the price of gold, it becomes apparent that, in chart terms, the lira gives the impression of a dive bomber that has been hit and is tumbling down from the sky. Who sits in the glass house should throw therefore better not with stones!

Furthermore, a use of cryptocurrencies in the daily payment settlement process would be associated with significant risks, according to the Turkish central bank. In this context, why didn’t the board also mention what significant risks are associated with a continued use of the lira?

And why isn’t it simply left up to the users of cryptocurrencies themselves to decide whether or not they want to get involved in these risks?! Meanwhile, users of private digital currencies are aware that their accounts can be hacked, even if this may seem unlikely from the perspective of the major cryptocurrency exchanges.

At the end of the day, however, the security requirements in online banking of commercial banks are also constantly being adapted and revised to make electronic payments secure and prevent account intrusions by hackers. Despite this, successful attacks (e.g., phishing) still occur in this area.

And so the ban on electronic payment transactions and transfers using cryptocurrencies decreed by the government and central bank in Turkey is by no means a surprise.

In March, the Turkish Ministry of Finance had already announced that it shared the “concerns existing at the global level” with regard to the development and use of digital currencies.

Already at that time, it was announced that, in addition to drafting intensified regulatory requirements, it would also cooperate with the Central Bank and the Domestic Banking Supervision Authority in order to henceforth act in a “solution-oriented” manner in this sector.

From a global perspective, Turkey is not alone in the fray when it comes to tightening up bitcoin and digital currency trading or even potentially banning it.

In India, too, similar intentions are being pursued by the government and the central bank. In this course, a law is currently being drafted, after the adoption of which private Kyptocurrencies are to fall victim to a ban on the subcontinent.

In addition, the Indian government, whose rupee currency has been on a similar downward slide as the Turkish lira over the past few years, intends to punish the trading and ownership of private cryptocurrencies such as Bitcoin by means of severe penalties in the future.

From Turkey’s point of view, the degree of trust that international investors have in the country on the Bosporus and its currency has reached a new low.

And so the ban decree that has now been passed fits seamlessly into the overall dilettantism that the Turkish authorities have displayed over the past few years with regard to their own currency.

A worried and increasingly frightened government in Ankara is now putting these feelings and emotions on display for everyone to see, as the cryptocurrency ban coincides with the elimination of one of the most dangerous competitors (next to gold) with regard to the domestic fiat currency – which is going under.

So, this development is unlikely to be described as a mere coincidence. In Friday trading, prices on the international digital currency markets reacted noticeably sensitive to this decision made in Turkey.

Bitcoin & Co. dropped by more than five percent at times after this news, only to recover a bit afterwards and make up for some of the losses incurred.

Countless critics of this decision have since warned the government of President Erdogan of having stepped in front of the crowd as a naked emperor, which could have the consequence that the flight from the Turkish lira will intensify over the coming weeks and months.

Just recently, I reported to you that the possible imposition of capital controls threatens to become the final nail in the coffin from Turkey’s perspective. Nonetheless, the downturn in cryptocurrency markets continued over the weekend.

Sunday night, bitcoin fell to as low as $51,708 per unit at its peak. Ethereum also came under the wheels significantly in the slipstream of Bitcoin, before a recovery began.

This event, which can be described as a crash, was accompanied by the closing out of long positions to the tune of more than USD 1.7 billion within just one trading hour.

Within twenty-four hours, the liquidation of long positions held until then amounted to nearly 930,000 contracts worth almost ten billion US dollars.

The slide seen in the cryptocurrency markets over the weekend appeared to have been triggered by a previously unconfirmed Twitter message, according to which the U.S. Treasury Department was prepared to intervene due to the use of cryptocurrencies with the purpose of money laundering activities.

However, it turned out to be quite unusual that this news was not picked up by Bloomberg or Reuters or reported by themselves. So it could well be that a manipulative message was published in this area to bring the prices of Bitcoin, Ethereum & Co. to a crash.

At lower levels, the entry could then have taken place. But this purely personal view is also not proven, so it is pure speculation. It should be noted at this point, however, that speculation has been spreading in online networks for weeks now about imminent intervention by the US government in the markets for private cryptocurrencies.

Officially, the responsible authorities in the United States have not (yet) commented on these speculations. It could just as well have been the case that the weekend crash on the cryptocurrency markets could have been triggered by a widespread taking of profits in the Dogecoin segment.

The onset of margin calls associated with this could have had a rapid impact on other areas in the cryptocurrency markets as a result. Dogecoin was most recently fueled by Elon Musk and Marc Cuban via Twitter (critics and countless observers speak of blank and open price manipulation).

In the course of this, Dogecoin gained more than one hundred percent in Friday trading alone, before the aforementioned price collapse occurred over the weekend. Under the Dogecoin onslaught, Robinhood’s brokerage and trading site had temporarily collapsed last Friday.

A third event was and is also closely followed among investors in the cryptocurrency markets. This is the recent IPO of Coinbase. This IPO was associated with extremely high expectations on the overall market, which, however, have been massively disappointed in the meantime.

Not only did the Coinbase share price plummet after the IPO day, there were also emerging reports that Coinbase insiders had sold their own shares totaling five billion US dollars on the day of the IPO. This certainly does not inspire much confidence.

It was interesting to note that Federal Reserve Chairman Jerome Powell actually addressed Bitcoin directly at one point last week. According to him, Bitcoin resembles “a little bit of gold.” In the case of Bitcoin, he said, it is more of a speculative instrument than a payment instrument.

Really? So why have the Turkish government and the Turkish central bank now announced the ban described at the beginning of this article? From the perspective of the head of the ECB, Christine Lagarde, Bitcoin and private cryptocurrencies played a supporting role with regard to criminal activities.

According to Lagarde’s view, private cryptocurrencies enabled their users to do “funny business.” Despite all this, neither Jerome Powell nor Christine Lagarde have yet commented on the circulating speculation about possible imminent intervention in the cryptocurrency markets.

In Lagarde’s view, private cryptocurrencies allowed their users to engage in “funny business.” Despite all this, neither Jerome Powell nor Christine Lagarde have so far commented on the circulating speculation about possible imminent intervention in the cryptocurrency markets.

Just recently, it has come to the publication of a report prepared by the newly launched lobby organization Crypto Council for Innovation. This lobby group includes Coinbase and Square, as well as Fidelity Digital Assets, among others.

In his report, study author Mike Morell drew the attention of governments and central banks to two key parameters, according to which the case of strong generalizations regarding Bitcoin & Co. is said to be widespread exaggeration.

Secondly, with regard to blockchain analysis, it is a very efficient tool for fighting crime as well as a tool for gathering intelligence. For those of you who may have further interest in the findings that emerge from this report, please click on the link above. An in-depth discussion of this report is beyond today’s scope.

DepthTrade Outlook

As is beginning to be indicated, governments now have their backs to the wall financially, some more, some less. The fact that a whole host of emerging markets, including Turkey, are having increasing difficulty stabilizing their domestic fiat currencies comes as no surprise when viewed from the perspective of the crash of economies being observed around the world.

And if the proponents of cryptocurrencies have so far always put forward their arguments as to why a ban and prohibition would be completely absurd or even impossible after all, the reality now shows that Turkey might have only given the prelude to a development that could soon be joined by India and other nations as well.

For this reason, in addition to an assessment of the opportunities, you should always look at things with a bit of criticism and, above all, with a bit of emotional distance, even if you are still so convinced of an innovation.

Ben Schaack Send an email

Mr. Schaack is a financial analyst, specializing in the commodity, foreign exchange, and crypto markets - with more than 10 years of experience. Besides his business analytics studies, Mr. Schaack works as a journalist - covering finance, economy, and geopolitics. His special interests are focused on inflation hedging and exponential (compound interest) growth. He posts and discusses relevant news on his Twitter account.
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