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The Turkish lira crisis is leading many investors to look with interest to the world of cryptocurrencies. The data shows how the increase in people who convert the Turkish currency into Bitcoin (BTC) has never been higher.
This article will provide more details regarding what is happening in the Turkish currency market. After this premise, it will be easier for readers to understand the success of BTC in the country.
The Lira crisis – A sad tale of high inflation
While the Turkish Lira decline began in 2018, some may claim its motivations grew in the previous years. Let us go back to 2016, when the government suffered a coup attempt. The sudden asset seizing required by President Erdogan caught the market by surprise.
Economists started claiming that Erdogan was dismissing worries over private investors fleeing from the government. But, interestingly, we have observed a sudden decrease in public economic analysis from Turkey in the same period.
The impression is that, at least at first, few in Turkey realized that their currency was falling apart. Silencing analysts, however, did not make the crisis go away. With foreign investors moving their capitals elsewhere and energy prices increasing, inflation hit 30% in December 2021.
Even worse, the government expects 2022 to see a 40% inflation rate, an estimation that economists find hard to verify. Of course, inflation only worsened the decline of the Turkish lira on the foreign exchange markets.
To clarify the issue, we can take a look at the average yearly value of the Lira against the U.S. Dollar:
- 2005: $1.34
- 2010: $1.50
- 2016: $3.02
- 2018: $4.83
- 2019: $5.67
- 2020: $7.00
- 2021: $13.49
Considering that Erdogan came to power in 2003, one may say that the market is sending a clear political signal.
A crypto revolution
This unprecedented political context pushes Turkish citizens to explore alternative sources of income. It is essential to remind everyone that Turkey has had historically low private saving rates among its people.
If you can’t save money during a growing economic phase, problems will arise the economy enters a crisis. The enormous decline in the value of the Lira caused import prices to skyrocket, reducing savings in the country.
In this context, it should not be surprising to notice how average citizens are looking at crypto with interest. Of course, one can be sceptical towards cryptocurrencies because of their volatility, but this concept hardly applies to Turkey.
Take a look, once again, at the variation of the Turkey value between 2020 and 2021. With a quote reduction of nearly 50% compared to the U.S. Dollar, the Lira started behaving like cryptocurrencies.
Citizens who saw the value of their savings decline further due to political reasons looked elsewhere in the payment industry. When choosing between two equally volatile investments, people will prefer the highest expected return.
This mindset can justify the growing popularity of BTC in the country. Even better, investors who are more familiar with crypto are moving their funds into stablecoins. Interestingly, therefore, the Turkish market shows a division:
- High-risk propensity with investors converting the Lira into BTC
- Low-risk propensity as more and more people are selling Lira to buy Tether (USDT).
The data demonstrate the existence of the division we have just mentioned.
Erdogan has recently stated that the country is “at war” with cryptocurrencies. However, the actual content of a new bill in the hands of policymakers appears to be unclear. Moreover, the information the market received in 2021 was not particularly encouraging, with the police arresting crypto executives.
The market also remembers how the Turkish central bank directly attacked cryptocurrencies in April 2021. The premises to the new bill do not appear to be positive for crypto traders, who wait for more details on this.
Crypto in Turkey – What can we learn from this story?
The way Turkish people quickly enter the crypto market indicates decreasing trust in its monetary system. Unfortunately, Turkey is not alone, as the list of countries moving to this market due to high inflation is getting longer.
Turkish policymakers will soon need to make a choice. On the one hand, Turkey may introduce a strict regulation on cryptocurrencies, with an implicit ban. On the other hand, the government may stabilise its currency before tackling the crypto market.
The crypto bill should become publicly available in the following weeks, and the market remains vigilant on the matter.