How are Cryptocurrencies Helping People Offset Inflation in Turkey?

2022/01/19 03:40:48

The annual inflation rate of Turkey soared significantly higher than predicted in December, reaching 36.08 percent year on year for the very first time since September 2002. This highlights the depreciation of the Lira since last year.

Turkey’s Annual Inflation for the Years 2019-2021 | Source: Turkstat

According to the Turkish Statistical Institute, consumer prices increased 13.58 percent month over month, vs. a Reuters poll prediction of 9%. Inflation was predicted to be 30.6 percent on an annual basis.

After the report, the Lira was trading at 13.6 versus the dollar, down 3% on the day but still off an early low of 13.9. After a turbulent last two months, it lost more than 40% of its value.

Lira's decline to new lows after the central bank lowered its policy rate by 500 basis points since September has kept inflation hovering around 20% in the last few months. As per a report released in late October, the central bank predicted that year-end inflation would be 18.4%. The central bank also stated that transitory causes are driving up prices and that short-term inflation will be turbulent.

Citizens Turn Towards Bitcoin and Related Assets Amid Plummeting Lira

The Turkish Lira has grown so volatile that citizens are trying to find other savings accounts like gold, US dollars and cryptocurrencies to hedge the surging inflation, though crypto is considered relatively more volatile compared to other assets.

According to blockchain analytics firm Chainalysis, although the Lira depreciated against the dollar in the fourth quarter of 2021, crypto trading volumes utilizing the Lira increased to an average of $1.8 billion per day among three exchanges.

Accroding to the report from the Wall Street Journal, Tether-a stablecoin pegged to the dollar on a 1:1 ratio, has particularly become popular among the Turks. A data report from CryptoCompare said that the Lira has surpassed USD and EUR as the most traded government-issued currency versus Tether this fall.

Despite the ban on the use of crypto as a means of payment in Turkey enacted last year, Turks have still welcomed the emerging digital assets. Tether and other stablecoins are utilized for trading in and out of positions in more volatile coins like bitcoin and ether. According to Esra Alpay, the chief marketing officer of Paribu, the volume of new traders on the Turkish crypto exchange Bitlo increased last quarter as the Lira's value plummeted.

Cryptocurrency Trades Hits a new Daily High

Reuters statistics show that the number of crypto trades in Turkey has risen to one million per day as the Lira has fallen to new lows.

The one million-a-day mark was first breached earlier this year, according to data from blockchain monitoring firm Kaiko, when the country's central bank leader was abruptly replaced in March, sparking the Lira's first big collapse of 2021.

Since 2019, Bitcoin and Tether have been the most popular for Lira trades, as mentioned earlier.

However, authorities are paying attention to Turkey's surge in crypto trading. In September 2021, Turkey's deputy finance minister announced that laws on emerging asset classes would be implemented. In April, the country's central bank prohibited crypto for traditional purchases, noting "irreparable" harm and transaction concerns.

How Could Bitcoin Fix Turkey’s Currency Crisis?

Bitcoin's limited supply of 21 million and its decentralized nature made it a fantastic store of value compared to other currencies like the Turkish Lira and even the US dollar, whose purchasing power has progressively declined since the Federal Reserve's inception in 1913. The dollar has lost almost two-thirds of its value in the last 40 years as Fed governors seek increasingly unconventional monetary policies.

Alternative Cryptocurrencies for the Turks

With the unstoppable rise in inflation, it is ironically safer to get into Bitcoin and other cryptocurrencies than staying in cash.

Bitcoin has obviously been proving itself to be a great store of value, but more assets in the crypto space are as stable as Bitcoin and might as well offer better yield in the long term.

Ethereum (ETH)

Ethereum (ETH), the first Bitcoin alternative on our list, is a decentralized software platform that allows smart contracts and decentralized apps to be written and run without the need for third-party interruption, fraud, censorship, or intervention.

Ethereum is the second-largest digital currency by market value behind Bitcoin; however, it is still much behind the dominating cryptocurrency. Ether's market valuation is barely over half that of bitcoin, trading at roughly $3,200 per ETH, as of writing.

The recent year-on-year returns of ETH have always surpassed Bitcoin, making it a better alternative to BTC.

Polkadot (DOT)

Polkadot (DOT) is a one-of-a-kind Proof-of-Stake cryptocurrency that aims to integrate other blockchains. Its protocol connects permissioned and permissionless blockchains, allowing systems to collaborate under one roof. Polkadot's essential component is its relay chain, which enables network interoperability.

Gavin Wood, another of the Ethereum project's main founders who had conflicting perspectives on the project's future, launched Polkadot. Polkadot has a market valuation of over $26 billion as of writing.

The asset is currently trading around $24.5. It possesses higher volatility than Bitcoin and Ethereum but has better growth potential in the long term.

Similarly, other cryptocurrencies, such as Solana, Cardano, Polygon, etc., are backed with powerful fundamentals, roadmaps, teams, and technicals. However, since the plan is to hedge against inflation, the investments must be made on a medium to long-term basis in order to realize its benefits and beat the volatility in the crypto market.

Closing Words

KuCoin is also becoming a popular crypto exchange recognized by Turks, and we find our Turkish investors are actively involved in new crypto gems listing on KuCoin to seek high investment returns, FLUX, XCAD, ARA, to name a few.

Since Lira’s slump has no hindsight of coming to an end, cryptocurrencies are expected to play a big role in Turks’ calendar to maintain their standards of living unless the governments further tighten the crypto regulations. Without a doubt, Bitcoin is the asset that our Turks are paying close attention to.