Despite the growing acceptance for digital assets, the central bank of Turkey has banned the use of cryptocurrencies and crypto-assets to purchase goods and services, indicating possible irreversible damage and significant transaction risks.
The central bank, in its legislation published in the Official Gazette, stated that the cryptocurrencies and similar digital assets based on distributed ledger technology could not be used, directly or indirectly, as an instrument of payment in the country.
“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 will not be able to provide any services related to such business models. 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.
In recent months, the crypto market of Turkey has gained momentum as investors joined a global rally in bitcoin, seeking to hedge against lira (Turkish currency) depreciation and inflation, which topped 16 percent in March.
The Turkish ban has slowed down the Bitcoin rally, the coin’s value fell nearly 3 percent at $61,490 versus the dollar.
The central bank in its statement said that “crypto-assets were neither subject to any regulation and supervision mechanisms nor a central regulatory authority, among other security risks.”
Earlier this week Royal Motors, which distributes Rolls-Royce and Lotus cars in Turkey, became the first in the country to declare it would accept payments in cryptocurrencies.
According to data from US-based research firm Chainalysis, the crypto trading volumes in Turkey hit $27 billion from early February to March, up from just over $868 million in the same period a year earlier.
“Any authority which starts regulating (the market) with a ban will end up frustrated (since this) encourages fintech startups to move abroad,” economist Ugur Gurses tweeted.
Last week, Turkish authorities demanded user information from crypto trading platforms. The legislation was assigned to go into effect on April 30th.
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