Lack of Regulatory Supervision
The central bank of Turkey issued a new regulation that bans merchants from accepting cryptocurrency payments for goods and services. The decision is based on the belief that Bitcoin, and other major cryptocurrency assets used for payments, are posing significant transaction risks.
"Payment service providers will not be able to develop business models in a way that crypto assets are used directly or indirectly in the provision of payment services and electronic money issuance," the central bank said in today’s statement.
The new regulation, which enters into force today after it was published in the Official Gazette on Friday, sent Bitcoin prices tumbling on Friday morning. The BTC price fell 4% to trade below the $61,000 mark after it printed fresh record highs near $65,000 on Wednesday.
The latest surge in BTC prices came after the cryptocurrency exchange Coinbase made its much-awaited direct listing debut on Wednesday afternoon. Shares of the company soared over 60% at one point, compared to the reference price of $250 set by the Nasdaq stock exchange a day earlier. Coinbase stock then rotated lower to settle in the low $300s.
The latest move from the central bank in Turkey comes just days after the regulator requested information from crypto trading platforms. The appeal for Bitcoin, and other cryptocurrencies in general, has risen in Turkey recently as BTC is widely regarded as a hedge against inflation.
Turkey reported inflation figures of 16.19% for the month of March, which is much higher than the central bank’s target of 5%. The government is struggling to control a surge in prices given that the Turkish lira has further fallen against the dollar and euro.
Globally, inflation figures are expected to soar in the coming months as economies reopen. Unprecedented stimulus packages unveiled last year to support the global economy are very likely to mark the return of higher inflation. Given the limited supply, both Gold and Bitcoin are seen as a hedge against rising inflation.
The central bank said that providers of cryptocurrency payment solutions will not be able to develop their business models focused on direct, or indirect, “provision of payment services and electronic money issuance.”
"Their use in payments may cause non-recoverable losses for the parties to the transactions ... and include elements that may undermine the confidence in methods and instruments used currently in payments," the central bank added.
Some major local businesses in Turkey, such as a car distributor Royal Motors, started accepting cryptocurrency payments recently. The local opposition, as well as cryptocurrency analysts, criticized the latest decision from the central bank.
Economist Ugur Gorses says that making such moves will “encourage fintech startups to move abroad.”
Bitcoin price has dropped 4% today after Turkey’s central bank banned cryptocurrency payments in the country after some investors turned to BTC and other digital assets amid rising inflation that has continued to hurt the Turkish lira.
About the Author
Luigi Wewege is the Senior Vice President and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an instructor at the FinTech School which provides online training courses on the latest technology and innovation developments within the financial services industry. Luigi is also the published author of "The Digital Banking Revolution."