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Turks Bet Big on Crypto as Safety for Diving Lira

According to Kaiko, lira trades made up 10% of bitcoin trading volumes in the $1.1 trillion a day market in early June, down from 18% in May. At the start of 2023, the data provider reported 4%.

Photo by Anna Berdnik / Unsplash

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The plummeting lira is driving Turks to the crypto market.

Tether, a dollar-backed stablecoin, was in strong demand in early May ahead of elections and has stayed high since President Recep Tayyip Erdogan's triumph rocked markets.

That comes despite a worldwide crackdown on the asset class and declining prices for major tokens as the lira has recently fallen to historic lows.

After the elections, the Turkish lira fell 11% versus the dollar. Erdogan's unorthodox economic measures, including interest-rate cuts to contain 80% inflation, have caused the lira to lose 80% since the 2018 election.

Because stablecoins are pegged to the US dollar, these crypto assets are becoming more appealing.

New Era in Turkey?

After President Erdogan's re-election on May 28, rumours that he might name ex-Merrill Lynch strategist Mehmet Simsek as finance minister boosted stocks and dollar bonds.

On Friday, Erdogan appointed another former Wall Street banker, Hafize Gaye Erkan, to head the central bank, accelerating the advances.

Appointments have sparked wagers.

Investors also anticipate that the central bank, holding interest rates considerably below inflation, will shift towards market orthodoxy with Simsek's return.

Erdogan is finally abandoning the unorthodox economic policies that decimated a once-booming rising economy, sparking soaring inflation and a flight of foreign investment.

Overseas funds sold US$52 million of shares in the week of June 2, taking advantage of the stock boom. Local investors have pushed the market thus far.

The central bank reported US$15 million in local bond purchases.

Investors have lost. Erdogan's hiring of Simsek and Erkan is reminiscent of his 2020 market ceasefire. Naci Agbal's dismissal four months later shattered the ceasefire. After Agbal left, Erdogan continued to lower interest rates despite double-digit inflation.

So international investors are waiting to see if Turkey's choice of veteran Wall Street bankers to handle its finances is legitimate before investing.

But Simsek promises a "credible programme" to restore the US$900 billion economy with "transparency, consistency, accountability and predictability." Many believe Erdogan must give Simsek and Erkan financial power this time, no matter how distasteful.

Bank of America reports that Erdogan's foreign-exchange operations have reduced central bank reserves to US$11 billion, US$62 billion below what it considers acceptable.

With so much uncertainty, and a falling domestic currency, Turkish investors looking for safe havens have turned to stablecoin Tether,

For now, Tether has 20% of trade volumes on BTCTurk, one of the main Turkish crypto exchanges, compared to 1% on Binance, indicating considerable demand for the stablecoin in Turkish markets, according to CoinMarketCap.

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