Turkey's Crypto Assets Market Scale Ranks Among the World Leaders, Analysis of New Regulatory Policies

In recent years, Turkey has been playing an increasingly important role in the global Crypto Assets market. According to statistical data, Turkey has risen to become the fourth largest Crypto Assets trading market in the world, following the United States, India, and the United Kingdom.

The enthusiasm of the Turkish people for Crypto Assets stems from the country's economic instability and currency depreciation issues. In the face of high inflation and the ongoing weakness of the lira, more and more Turks are viewing Crypto Assets as an important tool for hedging economic risks and preserving value.

From the end of 2020 to the end of 2023, the Turkish lira depreciated against the US dollar by more than 300%. On August 23 of this year, influenced by high domestic inflation and other factors, the exchange rate of the Turkish lira against the US dollar fell below 34 to 1, setting a new historical low. According to reports, since 2024, the exchange rate of the Turkish lira against the US dollar has already declined by about 15.2%.

Despite the large scale of Turkey's Crypto Assets market, the lack of a clear regulatory framework for a long time has kept the country's Crypto Assets industry in a legal gray area. Although the Central Bank of Turkey issued a ban on using cryptocurrencies such as Bitcoin for payments in 2021, this measure has not fully regulated the entire market. With the growing global emphasis on Crypto Assets regulation, Turkey has also begun to gradually strengthen its management in this field.

Turkey's Crypto Regulation Clarified

The "Capital Markets Law Amendment" passed by the Turkish Parliament in June this year and effective in July has attracted widespread attention in the Crypto Assets industry. The country's Capital Markets Board (CMB) emphasized that this amendment establishes a preliminary regulatory framework for Turkey's Crypto Assets service providers. The main contents include:

1. Designate CMB as the regulatory body for the encryption industry, granting it the authority to operate, supervise, sanction, and take measures.

2. Establish criminal liability for unauthorized operation of encryption businesses, misappropriation of user assets, and fraud.

3. Require trading platforms to establish monitoring systems to identify, prevent, restrict, and report market manipulation and security incidents.

Currently, despite the lack of a comprehensive Crypto Assets regulatory framework, Turkey's existing regulations still exert a certain level of oversight on the market. This includes the central bank's prohibition of using Crypto Assets for payments, as well as the Financial Crimes Investigation Board (MASAK) requiring exchanges to collect KYC data to maintain anti-money laundering measures.

Turkey's Finance Minister Mehmet Simsek has revealed that a more comprehensive cryptocurrency regulatory bill has entered the final assessment stage, and is expected to provide clear legal grounds for operators such as cryptocurrency wallets, crypto asset service providers, and crypto asset custodians.

Interpretation of the Newly Revised Capital Market Law Amendment

On July 2, 2024, the Turkish government officially passed the Capital Markets Law Amendment No. 7518, establishing a clear legal framework for the operation of crypto assets service providers (CASPs). This amendment marks the entry of Turkey's crypto assets market into a new era of compliance.

Background of the amendment introduction

Since 2021, Turkey has been placed on the FATF gray list due to money laundering risk issues. In order to improve this situation and clarify the taxation policies for Crypto Assets, Turkey has begun to intensify its regulatory efforts in this field. Today, Turkey has successfully been removed from the gray list, and a new regulatory framework has been introduced, laying the foundation for the standardized development of the Crypto Assets market.

Key points of the new regulations from the Capital Market Committee ( CMB ).

1. All Crypto Assets service providers must obtain permission from the CMB and comply with the standards set by TUBITAK.

2. Activities related to banks also require approval from the banking regulatory and supervisory authority (BDDK).

3. The establishment conditions of the Crypto Assets platform:

   • It should be established as a joint-stock company with a minimum paid-in capital of 50 million Turkish Lira.
   • All shares shall be issued in cash and registered.
   • Founders and managers must comply with relevant legal regulations and possess sufficient financial strength, honesty, and trustworthiness.
   • The scope of business should be clearly defined, covering activities such as purchasing, selling, initial issuance, distribution, settlement, transfer, and custody.

4. Transition and Settlement of Platform Operations:

   • Existing operators must submit the required documents to CMB within one month.
   • Companies that have not submitted an application must make a liquidation decision within one month.
   • Temporary operating platforms must submit their operating license application by November 8, 2024.
   • 76 exchanges obtained temporary licenses, while 8 exchanges that failed to meet the requirements were asked to withdraw.

5. Strict regulations and penalties:

   • Engaging in Crypto Assets services without authorization may face 3 to 5 years of imprisonment and fines ranging from 5000 to 10000 days.
   • Misappropriation of entrusted funds or assets can result in a maximum sentence of 14 years in prison.
   • Engaging in fraudulent activities to conceal misappropriation can result in a prison sentence of 14 to 20 years and a fine of up to 20,000 days.
   • Illegal use of resources from crypto assets service providers with revoked licenses can result in a maximum of 22 years imprisonment and a fine of 20,000 days.

The Impact and Prospects of Regulatory Frameworks

The implementation of the Capital Markets Law Amendment will have a profound impact on the Turkish Crypto Assets market:

1. Enhance market trust and stability: Strict regulatory standards will improve market transparency and accountability, helping to prevent misconduct and lay the foundation for long-term market stability.

2. Promote compliance and standardized development: New regulations will drive the industry towards standardization, eliminating non-compliant market participants.

3. Attracting international companies to participate: Several internationally renowned exchanges have applied for licenses, demonstrating the appeal of the Turkish market. This may intensify market competition while bringing more advanced technologies and services.

4. Strengthening regulatory efforts and market consolidation: Severe penalties help to eliminate illegal activities in the market and promote healthy market development.

5. Market Growth Potential: As the world's fourth largest Crypto Assets trading country, Turkey's market is expected to welcome new growth opportunities under the new regulatory framework.

The "Capital Markets Law Amendment" has brought new order and regulations to Turkey's Crypto Assets market, while also laying a solid foundation for its future development. With more enterprises participating and the market gradually maturing, Turkey's Crypto Assets market is expected to usher in a new wave of prosperity.