With crypto prices trading at record highs, torrid retail interest in the sector caused Robinhood's crypto-trading platform to crash (though, as Zero Hedge readers probably understand, that's par for the course for Robinhood), the rally came to a screeching halt early Friday as dictatorial banana republic Turkey - of all places - decided to crack down on the use of virtual currencies in desperate hopes of preserving confidence in the Turkish lira, the world's worst performing banana republic currency.
Bitcoin dropped as much as 4.6% on Friday as Turkey banned its use for payment, restrictions that will take effect on April 30.
The curbs also prohibit Turkish companies that handle payments and electronic fund transfers from processing transactions involving cryptocurrency platforms, essentially cutting off legions of Turkish retail traders - who have been finding respite in crypto from their increasingly worthless domestic fiat currency - from the country's banking system.
As for why, the central bank cited a lack of regulation, supervision mechanisms or central regulatory authority, combined with the potential for criminal activity and the high volatility of their market value, mean digital tokens entail “significant risks."
The official decree was published Friday in the official government gazette and as a statement on the website of the Turkish central bank. Find the statement, published in English, below:
Crypto assets entail significant risks to the relevant parties due to the following reasons:
they are neither subject to any regulation and supervision mechanisms nor a central regulatory authority, their market values can be excessively volatile, they may be used in illegal actions due to their anonymous structures, wallets can be stolen or used unlawfully without the authorization of their holders, and transactions are irrevocable. Recently, some initiatives have emerged regarding the use of these assets in payments. It is considered that their use in payments may cause non-recoverable losses for the parties to the transactions due to the above-listed factors and they include elements that may undermine the confidence in methods and instruments used currently in payments.
Accordingly, pursuant to the authority vested by the Law No:1211 on the Central Bank of the Republic of Turkey (CBRT) and the Law No. 6493 on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions, the CBRT has introduced “Regulation on the Disuse of Crypto Assets in Payments”.
The ban isn't a complete surprise: In March, Turkey's Treasury and Finance Ministry said it shared the "global concern" about the development of cryptocurrencies. The ministry signaled it was working on regulations in cooperation with the central bank, the banking regulator and Turkey’s capital markets board.
Turkey isn't alone in moving to crack down on bitcoin: India is expected to propose a law that bans cryptocurrencies and fines anyone trading or holding such assets. Still, the timing of the ban is certainly notable, as faith in Turkey's central bank by the community of international investors is presently at, or near, an all-time low. With this in mind, Turkey's ban looks more like a worried government sidelining a serious competitor to its own currency.
Crypto prices dropped by about 5% on the news but have since rebounded and are set to close at new all time highs as Erdogan's desperate attempt to ban capital flight into crypto will only lead to more demand for it.