As Turkey’s economic troubles escalate and the Turkish Lira continues to collapse, Bitcoin could be an alternative offering the troubled nation a safe haven.
The Lira has been impacted by a dispute between Ankara and Washington and is currently trading below 6.1 to the dollar. The Turkish currency is experiencing extreme swings relative to the US dollar surpassing the volatility of Bitcoin.
Due to this, Bitcoin and cryptocurrency trading volumes on Turkey’s exchanges is surging. CoinDesk reported CoinMarketCap volume at Turkish exchanges Paribu, Btcturk and Koinim increased by more than 100% each. Absolute volumes are still relatively small at these exchanges, with Btcturk, the country’s largest, handling $11.6 million in trades.
There is widespread fear that this situation could escalate and spill over, impacting European financial institutions. Aaron Anderson, senior vice president of research at Fisher Investments says that even though Turkey has genuine problems, these are well contained to the country without much transmission potential globally.
Anderson highlights that the Turkish debt is a miniscule portion of European bank assets, and a fair amount of that is hedged. Not to mention European banks are as well capitalised as they have ever been, providing a significant capital buffer to potentially bad Turkish debt.
Last year Venezuela’s currency, the Bolivar, suffered similar issues, losing value quickly. In a desperate bid to save the country from hyperinflation Venezuela’s President, Nicolas Maduro, launched the cryptocurrency “Petro” which is backed by oil reserves to shore up a collapsed economy. During a television appearance Maduro acknowledged the country now has two official currencies; the Bolivar and the Petro.
This is a perfect example of crypto playing an important role. Oded Noam, Blockchain architect at Orbs says if Liras are riskier than other currencies, people will shift to buying Euros, Dollars or Bitcoin.
“However, if the Euros are kept in banks inside Turkey, the government can freeze or even forfeit these assets,” says Noam. “Turks saw that happen in neighboring Cyprus just a few years ago. Bitcoin is seen as a safe haven from such action: Cryptocurrencies are managed by a computer protocol that cannot be manipulated, so no government has the authority to freeze accounts or forfeit anyone’s holdings.”
This is not the first economy in trouble and it won’t be the last. Nicolas Gilot, co-CEO of blockchain-powered gaming distribution platform Ultra, says cryptocurrencies have become increasingly popular in countries such as Venezuela, where the local economy is in turmoil and currency is struggling.
“Bitcoin has now become a store of value, and many recognise it as digital gold instead of a payment system,” says Gilot. “As the Lira’s crisis deepens, Turkey’s crumbling economy could also turn to Bitcoin in its hour of need as it offers an alternative solution to hyperinflation and a collapsing currency.”
The trade war between the US and China is also having a ripple effect across the world. Gianluca Giancola, co-founder and head of UX and Design at blockchain powered firm qiibee, says: “Trade wars and economic crises around the world have impacted the public’s confidence in fiat currency, which could lead to an increased interest in crypto.”