The Turkish lira has become so volatile that Turks have ditched the local currency for assets with an even riskier reputation: cryptocurrencies.
While the lira unraveled against the dollar in the last quarter of 2021, cryptocurrency trading volumes using the lira leapt to an average $1.8 billion a day across three exchanges, according to blockchain analytics firm Chainalysis. Those volumes are still modest compared with the results of a 2019 survey by the Bank for International Settlements that found roughly $71 billion of lira transactions a day, but even so are more than any of the preceding five quarters.
Turks are particularly enamored of the stablecoin tether, whose value is pegged to the dollar. The lira this fall became the most traded government-issued currency against tether, outpacing the dollar and the euro, according to data provider CryptoCompare.
Turks have long weathered spells of economic turmoil by keeping their money in U.S. dollars, euros or gold. The rise of cryptocurrencies in recent years has presented a new group of instruments in which to store wealth, albeit far more volatile. Since September, the lira has lost 40% of its value against the dollar. Bitcoin initially jumped almost 40% against the dollar by early November, but is now down more than 10%.
In Istanbul, Turkey’s largest city and its commercial capital, ads for cryptocurrency exchanges appear on trams, billboards and one of the city’s two airports. Shops selling bitcoin have cropped up in the Grand Bazaar, tucked into alleys near where traders also sell foreign currency and gold.
President Recep Tayyip Erdogan plunged Turkey’s financial system into turmoil last fall with a push for repeated interest-rate cuts in the face of soaring inflation. The currency stabilized somewhat in recent weeks after a government bailout of savers, but local Turks remain wary.
"The senseless policies regarding rates, diminishing trust for published statistics regarding inflation and political decisions…made cryptos a safe haven, even though cryptos are rather risky and volatile financial assets," said Kağan Şenay, a 27-year-old trader in Bursa in northwest Turkey.
Mr. Şenay said he began trading bitcoin in 2017 to make extra money. Increasingly, he has also seen it as a way to protect his lira income from inflation. The buying power of the lira he earns from his job at a fabric producer has diminished alongside higher prices.
Turks have embraced cryptocurrencies despite an official ban introduced last year on their use as a form of payment in the country. The ban, which was unveiled without warning, "created a traumatic experience in the Turkish cryptocurrency community," said Turan Sert, an adviser to Turkish cryptocurrency exchange Paribu. The government has promised a new cryptocurrency law will soon be sent to the country’s parliament, but there are few details of what its impact will be, according to Mr. Sert.
Cryptocurrencies have grown in popularity in Turkey and parts of the developing world where distrust of government economic policies is high. Nigerians use bitcoin for payments after currency devaluations and tight control over access to foreign currencies. El Salvador last year became the first nation to recognize bitcoin as legal tender, after two decades of having its economy tied to the U.S. dollar.
In Turkey, part of the distrust extends beyond the lira. Two-thirds of Turkey’s banking deposits are foreign currencies, mostly dollars and euros. Turkish banks lend out some of those dollars to the central bank and the government, which has used them to intervene in foreign-exchange markets in an unsuccessful battle to prop up the lira.
If there was a rush to withdraw dollars, Turkish banks would need to get some of those dollars back to meet depositors’ needs, and there is some question whether the government could source the dollars. In a worst-case scenario, some fear the government could force banks to convert dollar deposits into lira.
That is pushing some to exchange bank-held dollars and cash dollars for what are known as stablecoins, cryptocurrencies whose value is pegged to traditional currencies such as the dollar, according to several Turkish savers. More than half the trades against the lira in December involved tether, Chainalysis said.
Stablecoins such as tether are also used as a gateway to trade in and out of positions in more volatile coins such as bitcoin and ether. Turkish crypto exchange Bitlo experienced a pickup in the number of new traders last quarter as the lira’s value cratered, said Esra Alpay, the firm’s chief marketing officer.
"The Turkish lira’s volatility and rising inflation seen in recent months has led our investors to see cryptocurrency as a profitable investment in the long term and as a hedge against inflation in the short term," she said.
Ege Tuluay, a 24-year-old student training to be a seafarer, walked into Caspicoin, a crypto shop in the Grand Bazaar, on Monday to check on the commission for buying tether with his U.S. dollar savings. He plans to use the tether to buy other cryptocurrencies.
"Cryptocurrencies offer hope for Turkish people because they are broke, so they want to make money. It seems to be easy money for Turkish people," he said.