The Turkish Lira is facing a serious decline and it would not be an overstatement to put it in contrast with the Bitcoin, in terms of volatility. So much so, that the 10-day swings in the lira relative to the U.S. dollar now exceed those for Bitcoin amid Turkey’s escalating currency crisis. According to Bloomberg’s report, under a rather volatile headline itself, that read: ‘Turkey meltdown propels Lira volatility above Bitcoin’, it has been reported that the Lira faces such an intense dip in value that the Turks are losing faith in their currency and looking towards other mediums of exchange in light of this ‘precipitous’ decline. This is among the latest of circulating stories around the massive devaluation of the Turkish national currency this year.
This phenomenon hasn’t been this worse, since the constitutional referendum which Recep Erdogan swept powers to gain Turkish presidency. While president Erdogan is bullish on his stand-off with the US, the general public is turning towards other forms of currencies to reinstate their personal financial collapse, most notably, the Bitcoin. Turkey has seen an uptick in consumer interest in Bitcoin since the lira, which had already halved in value against the dollar since January, rapidly slid to all-time lows.
Bitcoin enthusiasts took to Reddit to claim another victory in its performance against national fiat currencies, with one user claiming “Holding Bitcoin is less risky than holding Lira.” Looking at the price of Bitcoin at $6324.01 over the course of the past year, we can see a 40% increase in it’s value. Even in a large market correction like the one we are currently seeing, Bitcoin continues to outperform yet another national fiat currency.
According to Forbes, Bitcoin and cryptocurrency trading volumes on Turkey’s exchanges has surged over recent days as the country battles to contain a currency crisis that looks set to continue into this week.
Koinim, Turkey’s largest exchange, has reported a 63% increase in Bitcoin trading volume, while the BTCTurk and Paribu exchanges have said their volumes are up 35% and 100% respectively.
Unlike Iran, where a ban on bitcoin and cryptocurrency trading means those wanting to buy bitcoin must turn to peer-to-peer exchanges like LocalBitcoins, banks in Turkey often still work with local exchanges, meaning fresh adopters can begin buying and trading more easily. Infact, people are motivated to turn towards cryptocurrencies, most likely the Bitcoin and claim to feel much safer with it, compared to the volatile fiat in the country.
One bitcoin user in Istanbul who goes by a pseudonym, Bitmov, told that he has been using bitcoin to buy digital ads abroad for over three years.
I started personally trading crypto 1.5 years ago because of the weakness of the Turkish lira, and fear of the political, and financial, status of the Turkish government and cryptocurrency makes me feel much safer.
Turks giving up on the Lira?
According to data from Google Trends, interest in Bitcoin increased markedly in August, while local exchanges have seen volumes explode by over 150 percent this week alone. It seems as if the Turks have thrown in the towel on the Lira, which has depleted continuously since Erdogan’s takeover in the office. His consistent calls for the general public to convert their considerable foreign-exchange reserves to support the Lira are falling on deaf ears. Rightly so, it seems, as the public does not seem to want to give up their personal belongings and righteous deposits to support the national currency.
Sevin Temur, a 58-year-old retiree said:
I have respect for our president, but I can’t sell my gold and foreign currency just because he made that call, I’ve cut down on food for those savings.
For a leader who prides himself and his government of bringing prosperity to the Turks, this ill-response from the nation comes as a surprise, and may well as betrayal to Erdogan himself. Since his plea, in mid December last year, the Lira has been the worst performing currency in the world, having already succumbed half it’s value against the U.S. dollar and Euro. On Friday alone, the currency depreciated by 14 percent.
“I’ve lost about 1 million liras,” says 48-year-old jeweler Cahit Bas, referring to a figure that’s worth about $155,000 now, but $340,000 in mid-2016. “I think we’re heading for a crisis even worse than the previous one.”
Bas also described about two merchants committing suicide in the bazaar in the past week, due to the disastrous financial outset that the country has found itself in.
New faces in the Finance Ministry
The situation hasn’t been much help by the introduction of Erdogan’s son in law in the new parliament. The president decided to name the husband of his daughter, Berat Albayrak, as the minister of the newly combined finance and treasury ministry, on July 9. It rather felt as an ill-fated move, as several investors, both international and national among other traders expressing their reservations at the appointment. They had been used to dealing with steady hands in place at the economic centers of Turkey and haven’t cut poor Albayrak any slack.
“I’m so regretful I didn’t buy dollars, I feel like a fool,” said Bulent Ucuran, a 36-year-old shopkeeper. “When we have so many experienced people, leaving the entire economy to the son-in-law created insecurity,” he added
Since his incumbency, the Turkish bank shares dropped almost 20 percent and the Lira around 5 percent.
The U.S Spat
Even as many believed that the $900 Billion economy was already headed towards a cliff, yet trigger for the stunning debacle was new U.S. sanctions on Turkey. It is a general notion that the years of ‘growth at all costs’ policy have left the saddled economy on the edge of millions of dollars in foreign debt, runaway inflation and one of the world’s largest current-account deficits.
Turkey’s refusal to release American citizens and diplomatic employees imprisoned in the aftermath of a coup attempt against Erdogan in 2016, including Pastor Andrew Brunson, led the U.S. to begin imposing sanctions earlier this month. More are likely to come if Turkey keeps them in jail.
I call out to those in the United States. It is a shame. You are trading a strategic NATO ally for a pastor, You cannot tame our people with threats.
Erdogan said Saturday during a rally in the Black Sea port of Ordu referring to the U.S. decision to sanction Turkey for its imprisonment of an American priest.
The repercussion of Erdogan’s firm stance was instant. With the turmoil in Turkey fueling all kinds of fears for investors, who shunned riskier assets and sought safety in developed nations’ bonds. The Lira sank as much as 11 percent, the Rand 9.4 percent and Mexico’s peso 2.4 percent. South Africa’s Rand, the Argentine Peso also fell and global stocks declined. The euro sank as much as 1.2 percent to the weakest in a year against the U.S. dollar amid concern about European exposure to Turkish banks.
The Central bank announced a list of measures, which it says will support financial stability and proper functioning of markets. The steps included a cut to bank’s reserve requirements in a bid to boost liquidity.
Crisis to keep growing
The general public faces great restlessness with the current debacle and it could well be accounted as one of the great financial crisis’ of the world, if it isn’t there up till now. People are now considering taking out all their assets out of the banks, but to not much avail.
Turkey’s a very big country, but we can’t fight with everyone in the international arena, You can’t go out and fight one day with America and the next with Germany. Every outburst by Erdogan explodes on us.
Basak Genc, 38, said she was trying to deal with the turmoil by pulling all of her money out of the bank.
“We couldn’t get any foreign currency out yesterday: we wanted to take out $50,000 but they directly said ’no,’” she said. “We couldn’t carry out an EFT either,” she said, referring to an electronic funds transfer.
As lawmakers ponder over capital controls, cryptocurrency’s status in the country remains uncertain. Despite Turkey’s official stance appearing to suggest Bitcoin is not compatible with Islam and many other complex anomalies, local exchanges continue to receive full banking support, Forbes notes this week. Erdogan is expected to speak to the nation the coming Friday, and it remains to be seen if his stance will see any loosening till then as the Lira looks set to deplete further.
Experts such as BitMex claim to see a black market for the hard currency in the coming days and predict for that to reflect in premium Bitcoin prices of around $500 higher than on foreign platforms.
With capital controls being introduced in Turkey expect a black market for hard currency to develop which will be reflected in a premium in Bitcoin prices in Turkey. $TRYhttps://t.co/VbHpCkqU7W pic.twitter.com/CEmCYODKyB
— BambouClub [BitMEX] (@BambouClub) August 13, 2018
It could turn out to be a fortune for crypto-traders and for Turks that have already established themselves in the crypto market, as now, Turkey risks a Venezuela-style move towards bitcoin and cryptocurrency if people completely lose faith in its currency.