- Turkey banned crypto payments but legally recognized crypto assets.
- Fintechs are also banned from dealing with crypto, but local exchanges told Decrypt it’s a small share of the industry.
- But foreign exchanges like Binance, which rely on local fintechs for deposits and withdrawals, will have to revise their business model in Turkey.
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The new regulation, announced this morning and designed in part to protect the Turkish lira, will prevent foreign crypto exchanges from using local payments providers to facilitate deposits and withdrawals of Turkish liras.
Turkish banks, which do not fall under the ban, refuse to partner with foreign exchanges due to “regulatory ambiguity,” Mehmet Türkarslan, a lawyer from Ankara and legal counsel for a major local exchange, told Decrypt.
That’s why Binance partnered with local payments processor Papara in November 2019. Papara is one of 22 licensed processors that operate in Turkey. Following the ban, Binance must convince Turksh banks to partner with it or scrap lira deposits altogether.
Ahmed Karslı, CEO of Papara, told Decrypt that crypto payments form 10% of his company's annual revenue. Binance declined to comment and Huobi could not be reached by press time.
Karslı feels let down by the ban. “There was a clear ambition in a recent reform package that said the government would support encouraging the share of fintechs in Turkish finance,” he told Decrypt. “But this doesn’t look like any form of support.”
Local cryptocurrency exchanges hurt less
Less affected by the new regulation are local cryptocurrency exchanges, which are well-integrated with local banks. Their customers typically use bank wires to deposit and withdraw Turkish lira onto exchanges rather than payments processors.
Kerem Tibuk, the founder of the country’s major crypto exchange, BtcTurk, estimated that just 1-2% of the deposits on his exchange come from payment processors. “It’s such a small share of the overall volume that the regulation will not impact our operations,” he told Decrypt.
The ban also affects companies that accept crypto as tender for goods and services. Two days ago, Royal Motors, which distributes Rolls-Royce and Lotus cars in Turkey, became the first major Turkish business to accept payments in crypto—but that victory will be short lived.
Protecting the motherland’s currency
The only silver lining in all of this is that the Turkish government has finally acknowledged the existence of crypto assets in law, said the lawyer, Türkarslan.
“I understand where the government’s coming from,” said Türkarslan. “The government doesn’t want its fiat to become some sort of ghost money, slowly disappearing from everyday use,” explaining that the regulatory notice cites, among other legal sources, the Law on the Protection of Turkish Lira as its legal basis. That law also bans foreign currencies, such as the American dollar, from use in payments in the country.
“It’s protection in name only,” Alper Akalın, a financial advisor and the co-founder of Turkey’s opposition party, DEVA, told Decrypt. “Laws don’t protect the value of currencies, it’s the robust political and economic institutions, public trust in the value of the currency, and the overall investor confidence,” he said.
“And none of that can be achieved through an overnight regulation.”