This year has been a torrid year for cryptocurrencies.
The value of the world’s largest crypto, Bitcoin, has roughly halved, as has that of Ethereum. Other major cryptocurrencies, such as the stablecoin Terra, have collapsed altogether.
This downturn in digital asset markets comes at a time when the adoption of cryptocurrencies is growing across the Middle East.
While the Middle East only represented 6.6% of global crypto activity between June 2020 and June 2021, that period saw a 1500% increase in the region’s activity compared to the previous twelve months. This makes the Middle East one of the fastest-growing markets for crypto growth in the world.
"The Turkish Lira has lost over 25% in value against the US Dollar so far this year, while inflation is running rampant. Last month’s figures showed prices rises of almost 80%"
In the Middle East, crypto has proven to be particularly popular in Turkey. This is largely because of the appalling economic situation the country finds itself in.
The Turkish Lira has lost over 25% in value against the US Dollar so far this year, while inflation is running rampant. Last month’s figures showed price rises of almost 80%.
Many of these problems can be attributed to the unorthodox economic policies of President Erdogan. Contrary to one of the most basic principles of economics, he believes that lowering interest rates will reduce inflation, and has sacked various officials at the Turkish Central Bank who have opposed this.
Erdogan is against higher interest rates on ideological grounds, too. The Turkish President sees higher rates as a “scourge” which allows Western financiers to profit from speculating on the value of the Lira.
Because of this, consumers in Turkey continue to have their savings eroded and their standard of living seriously undermined, while it’s not entirely clear how and when the situation can be resolved.
Many investors see cryptocurrency's growth as a shelter against inflation and the depreciating Lira [Getty Images]
An increasing number of Turks have turned to cryptocurrencies in a bid to protect their savings from these policies – with crypto use increasing elevenfold in 2021.
Paribu, a Turkish crypto exchange, saw its domestic userbase grow from 600,000 to over four million in the same period, while global exchanges like Coinbase are also establishing a presence in the country to cater for increased demand. There has also been a marked proliferation of walk-in crypto exchanges in urban centres.
This growth has come despite the Turkish Central Bank banning cryptocurrencies from being used for payments, and debates within the Muslim World about whether cryptos are haram.
Some Islamic scholars have argued that, because of the amount of volatility and uncertainty involved in trading crypto, the practice is effectively gambling – something that is, of course, condemned in the Quran.
Aydin Can Gür, a Bitcoin and Crypto Asset Manager based in Istanbul, told The New Arab that “the cryptocurrency market is one of the first fields of investment that attracts Turkish people to make capital gains in a high-inflation economic landscape.”
“Depreciation of the Turkish Lira against the US Dollar caused a significant loss in real wages. And with the meteoric rise of property prices, buying real estate became unimaginable for millions,” he said. “Cryptocurrencies promise additional income or a potential escape from this crisis. That’s why they are pretty popular.”
Will this popularity be affected by the massive drop in cryptocurrency value? While those who have invested in digital assets have obviously been badly hit by the fall in prices, the indicative signs suggest that crypto use in Turkey is continuing to grow.
"An increasing number of Turks have turned to cryptocurrencies in a bid to protect their savings from these policies – with crypto use increasing elevenfold in 2021"
Nilay Özman, the Chief Marketing Officer at Bitay Turkey, a digital asset exchange, said that “the number of those who have heard about crypto money has increased by 11% compared to 2021.” Gür also noted that “even after the crash, the interest among people is still strong.”
The figures for this period haven’t yet been published, but it seems that, despite the volatility, increasing numbers of Turks are still exploring the world of crypto. That’s mainly because, with the economic conditions in the country so poor, they have few other options. Given the rapid rate at which inflation is destroying hard-earned savings, many believe they have little to lose from investing in crypto and that they may as well take a gamble.
“Cryptocurrencies show sharp increases [in value] at unexpected times,” Gür said. “The [prospect] of winning the lottery is appealing.”
Dr Murat Akdağ, a former official at the Turkish Central Bank and Founder of DeFi Portfolio, a cryptocurrency management company based in Istanbul, agreed with this.
Because inflation is running so high, and Erdogan refuses to allow the steps required to combat it, consumers simply must do something if they are to have any hope of retaining their purchasing power. The crash in digital asset markets has been significant, and investing in crypto is always a high-risk choice, but what other options do they have?
“Crypto is an escape route for keeping purchasing power,” Akdağ said. “If you do not take that risk, your savings are evaporating before your eyes. It’s all about survival [in a time of] hyperinflation.”
Interestingly, Akdağ also argued that Turkish crypto-users are beginning to look longer-term. While the Turkish Lira appears to be fatally undermined, apparently with little hope of recovery, digital assets could well recover – as they have done in the past. “Most users understand the cyclical events in crypto,” Akdağ said. “In the end, they know there will be sun after all the dark days.”
Whether “there will be sun” remains to be seen. Crypto investment has long been associated with high degrees of risk, and that will continue to stay true even if digital assets like Bitcoin mount a recovery in the coming months.
Despite that, it's unsurprising that more Turks are turning to crypto in the context of sky-high inflation and a grim economic landscape. They will need to hope that digital assets will indeed provide an escape route from the very serious problems that continue to engulf the Turkish economy.
Harry Clynch is Features Editor at Disruption Banking. He writes on politics, international affairs and international markets. His words have appeared in The Spectator, UnHerd and others.
Follow him on Twitter: @clynchharry