With consumer price inflation hitting an alarming 16 percent in March of this year, Turkey’s fiat currency, the Lira, is in deep trouble – particularly when compared to Bitcoin. The Lira was near parity with the US Dollar in January 2008, but it is now near its all-time low of 8.5 TRY to the USD. The failure of two Turkish crypto exchanges, Thodex and Vebitcoin, was perhaps a foregone conclusion due to the new restrictions, which were harsh and broad. According to a report published on Bloomberg, the CBRT is now planning to regulate the Turkish crypto industry actively.
While the CBRT’s governor has rejected any blanket ban on crypto, it is now planning to aggressively restrict the Turkish crypto industry, according to a report published on Bloomberg. The CBRT reportedly established a new custodial bank to hold the crypto funds of local crypto exchanges and probably other crypto businesses that accept user deposits. The proposed bank will most likely keep the companies cold wallets while running its hot wallets to avoid disrupting operations. This strategy would prevent a repeat of the Thodex exit scam, in which the company’s founder fled the country with $2 billion in user fun. Alternatively, the bank could be compromised.
The CBRT’s argument that the custodial bank would “eliminate counterparty risk” is false. In addition, this custodial bank will be in charge of handling all cryptocurrency exchange deposits in the nation. It is hoped that the CBRT would only hire trustworthy people, introduce strong security measures, and implement a capital threshold provision for exchanges ensuring certain businesses are capitalized. For tracking all related crypto and fiat balances, this measure will necessitate a high level of accounting transparency between crypto exchanges and the CBRT.
The costs of enforcement would likely raise fees on Turkish sales, but it would help avoid a repetition of Bitcoin crash. This proposal would be the first time a national central bank directly influences the crypto funds of its local industry. Although complying with banking-style regulations and reporting user details is now standard practice worldwide, making the financial authority itself hold the private keys is a new level of centralized control. If the custodial bank fails or is compromised, there is a risk of a humiliating loss. Turkish citizens’ crypto funds seizure is another possible danger, given Turkey’s current monetary difficulties. Turkish users will do well to remember the following maxim: “Not your keys, not your Bitcoin.”