Cryptocurrencies in Turkey: A Comprehensive Overview

Cryptocurrencies have gained significant traction in Turkey, becoming a focal point of financial discussions and investments. The current status of cryptocurrencies in the country reflects a growing interest among citizens, with a surge in crypto usage and investments. Despite the popularity of cryptocurrencies, the Turkish government has taken steps to regulate this burgeoning market.

Current Status of Cryptocurrencies

Turkey has witnessed a remarkable increase in crypto usage, with an estimated 8 million people engaged in crypto activities. The appeal of cryptocurrencies in Turkey goes beyond financial gains, offering a sense of freedom from the national currency, government economic policies, and corporate constraints. The falling value of the lira has further fueled the local interest in cryptocurrencies, positioning them as a refuge from economic instability.

In 2022 the Central Bank of Turkey issued a regulation letter where defined cryptoassets as intangible assets created virtually using distributed ledger technology and prohibited their direct or indirect use in making payments or providing services that enable such use. Payment service providers are also prohibited from developing business models that facilitate the use of cryptoassets in payment services. While the regulations do not ban the buying and selling of cryptoassets on exchanges, they specifically restrict their use as a means of payment in legal transactions.

In response to the booming crypto market, the Turkish government has initiated efforts to regulate cryptocurrencies. Proposed regulations are expected to focus on licensing, taxation, and security measures to safeguard users' assets. The government aims to establish criteria for minimum capital requirements, listings, custody, and operation licenses for crypto platforms. These regulatory advancements are crucial to ensure the stability and integrity of the crypto sector in Turkey.

Virtual Asset Service Providers (VASPs)

VASPs play a vital role in facilitating crypto transactions in Turkey. There are a lot of crypto companies facilitating their services in the country and more than 20 major local exchanges like BTCTurk and Paribu which have become key players in the Turkish crypto market, offering avenues for citizens to engage in crypto trading and investments.

The Turkish government has also brought cryptocurrency exchanges and platforms under anti-money laundering and terrorism financing regulations, requiring them to verify customer identities and report suspicious activities. In one case, the Turkish financial crimes investigation board (MASAK) fined the local Binance exchange 8 million Turkish lira (around $750,000) for violating local anti-money laundering laws. The government's focus on licensing criteria for platforms underscores the importance of regulating VASPs to ensure transparency and security in the crypto ecosystem.

The problem of VASP compliancy has become actual after the major Turkey’s crypto exchange Thodex has collapsed in 2021.

The collapse of the Thodex exchange

Thodex was one of the largest cryptocurrency exchanges in Turkey, with a user base of nearly 400,000 people. In April 2021, Thodex suddenly went offline, leaving all of its users unable to access their deposits of around $2 billion in cryptocurrencies.

The founder and CEO of Thodex, Faruk Fatih Özer, had fled to Albania after the exchange went offline. Özer was later arrested in August 2022 after an Interpol red notice was issued against him. In 2023 Özer, his sister Serap, and his brother Güven were sentenced to a total of 11,196 years, 10 months and 15 days in prison by a Turkish court for charges including fraud, running a criminal organization, and money laundering.

The collapse of Thodex created a stir in Turkey, where cryptocurrencies have been used as a hedge against high inflation and the devaluation of the Turkish lira. The incident highlighted the need for stronger regulation and oversight of cryptocurrency exchanges in Turkey to protect investors.

Bitcoin Mining

Bitcoin mining legality in Turkey remains a topic of interest. While the government has not explicitly addressed the legality of mining, the popularity of Bitcoin mining activities has grown significantly. The decentralized nature of cryptocurrencies has attracted many Turkish citizens to engage in mining activities, seeking financial opportunities and independence from traditional financial systems.

Tax Regulations Related to Cryptocurrencies

In Turkey, individuals are not required to pay income tax or capital gains tax on gains from the sale or trading of cryptocurrencies. This favorable tax treatment makes Turkey an attractive destination for crypto investors, as profits from cryptocurrency transactions are not subjected to these taxes for individual investors. However, it's important to note that businesses involved in cryptocurrencies, such as crypto trading platforms or mining operations, are subject to corporate income tax on their profits in Turkey.

The government is expected to introduce taxation policies that balance investor interests with regulatory requirements. A reasonable taxation policy is crucial to foster trust in the sector and encourage sustainable growth in the crypto market.

In conclusion, the landscape of cryptocurrencies in Turkey is dynamic, with a growing number of individuals embracing digital assets as a means of financial freedom and investment. As the government moves towards regulatory frameworks, the future of cryptocurrencies in Turkey holds promise for both investors and the broader financial ecosystem.