Second crypto exchange folds in Turkey as cenbank mulls new regulations

(Updated with report on GoldexCoin)

Rendered desperate by inflation at the official rate of 16.19 percent, but which the Independent Inflation Research Group (ENAG) calculates to be 32 percent, millions of Turks have sought a safe haven for their embattled lira in cryptocurrencies.

A 2020 crypto research report published by Turkey’s Information Technologies and Communications Authority (ICTA) estimated there were around 2.4 million crypto users in the country, about 3 per cent of its total population. 

But the lack of adequate regulation by Turkish authorities has left them vulnerable to scams and scandal.

Vebitcoin, the fourth-largest Turkish cryptocurrency exchange, has ceased operations on Friday. Vebitcoin Chief Executive Ilker Bas has been detained by police, along with three other employees, the Demiroren agency reported.

Vebitcoin cited deteriorating financial conditions as the cause of its shutdown, the agency report said.

Turkey launched an international manhunt for the founder of one of its major cryptocurrency exchanges after he stopped paying clients and fled the country.

The exchange normally has a trading volume of $60 million, according to CoinGecko. Thodex, the cryptocurrency exchange which announced failure on Wednesday, had a market cap of $1.2 billion, according to CoinMarketCap.

The Justice Ministry is seeking a so-called red notice under which Interpol would help find, provisionally arrest and return Thodex Chief Executive Officer Faruk Fatih Ozer from Albania to Turkey, state-run Anadolu Agency reported Friday.

Turkish police have detained 62 people in eight cities including Istanbul, where Thodex was based, while 16 others remain at large, it said.

On Thursday, in a statement from an unknown location on Thursday, Ozer promised to repay investors and to return to Turkey to face justice at a later date. The government moved to block the company’s accounts and police raided its head office in Istanbul, Bloomberg reported.

Turkey effectively has no regulation governing cryptocurrency at present.

Later on Saturday, Turkish media reported that investors in the country’s GoldexCoin cryptocurrency exchange could not access their accounts.

Investors initially failed in cashing out their investments with GoldexCoin, Gerçek Gündem news site reported, before losing the ability to access their accounts all-together.

Highlighting the loss of confidence by investors in the country's crypto currency platforms, many took to social media to blast popular users promoting GoldexCoin.

In an official statement released on its website, GoldexCoin pointed to troubleshooting for technical problems as the reason for the glitches, assuring investors that they would not incur any losses.

“The government was staying out of the crypto space,” Ismail Hakki Polat, lecturer at the Kadir Has University in Istanbul, told Coindesk. Polat explained that regulation for crypto would have had tax consequences that the government preferred not to impose during an economic crisis.

But, faced with these two scandals in a single week, Turkey's Finance Ministry hastily cobbling together regulations for crypto. Central Bank Governor Sahap Kavcıoğlu said on Friday that the central bank would not ban crypto, Reuters reported.

Kavcıoğlu said initial details would be ready in two weeks.

The central bank last week banned the use of crypto assets in payments citing significant risks due to volatile market values. However, many observers felt the driver of the move was really the need to keep Turks from exchanging their weak lira – now at record lows of more than 10 to the euro and and 8.38 to the dollar – into other fungible assets.

The opposition CHP party criticised the ban on crypto payments, saying that the legislation was sloppy.

“Rather than issuing a midnight legislation, you should have decided on such sensitive issues after consulting all relevant parties,” CHP leader Kemal Kilicdaroglu said.

Pointing out that there is no infrastructure, regulation and control mechanism for cryptocurrencies, Kavcıoğlu said, "Several countries have banned crypto money completely. You cannot solve this issue by just banning it. We do not have such an intention anyway," he told CNN Turk.

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