Research Report on the Turkish Cryptocurrency Market

Author: MIX Capital

1. Macroeconomic Indicators and Current Situation

Turkey is the 11th largest economy in the world by GDP, a founding member of the Organisation for Economic Co-operation and Development (OECD), and a member of the G20. Turkey became a member of the EU Customs Union on December 31, 1995, and is also one of the candidate countries for EU membership.

1.1 Land and Population Size

Turkey is a country that spans two continents, Asia and Europe, with its capital in Ankara. The total land area is 783,356 square kilometers, divided into 81 provinces. According to systematic records, the population of Turkey in 2022 was 85,279,553, with 93.4% living in provincial and regional centers, while only 6.6% resided in towns and villages, resulting in an average population density of 111 people per square kilometer. From 1950 to 2020, Turkey's population increased more than fourfold, from 20.9 million to 83.6 million.

1.2 Economy and Related Indicators

The World Bank classifies Turkey as a middle-income country based on its GDP per capita in 2007. The CIA categorizes Turkey as a developing country, but economists and political scientists often regard Turkey as an emerging industrialized nation. Merrill Lynch, the World Bank, and The Economist classify it as an emerging market.

Turkey ranks 17th in the world by nominal GDP and 11th by purchasing power parity (PPP). According to estimates from the International Monetary Fund, Turkey's GDP per capita in 2023 is projected to be $41,412 based on PPP, while its nominal GDP per capita is $11,932.

As of 2019, approximately 11.7% of the Turkish population faced the risk of poverty or social exclusion. The unemployment rate in Turkey was 12% in 2021. According to World Bank data, the middle-class population in Turkey accounts for about 41% of the total population.

1.3 High Economic Growth and High Inflation Coexisting

Turkey has a developed banking sector with over 50 banks. As of March 2023, Turkey's central bank had foreign exchange reserves of $62.6 billion (a 2.3% increase month-on-month) and gold reserves of $52.2 billion (a 7.2% increase month-on-month), with total official reserve assets amounting to $122.4 billion (a 4.3% increase month-on-month).

In the first quarter of this year, Turkey's GDP grew by 84.4%, while the lira depreciated by 26%, resulting in a GDP of $245.5 billion for the first quarter, the highest level ever recorded.

At the same time, according to data released by the Turkish Statistical Institute on November 3, 2023, Turkey's inflation rate reached 61.36% in October. The Turkish central bank also raised its inflation forecast for this year from 58% to 65%, and for 2024 from 33% to 36%. Currently, Turkey is one of the countries with the highest inflation rates in the world.

1.4 Economic Development Forecast for Turkey

In February 2022, the OECD conducted a long-term forecast of GDP for the 16 largest economies from 2030 to 2060 using PPP rates: due to population growth and urbanization, Turkey's GDP is expected to grow in the long term, with the potential to enter the Top 5 rankings by 2060.

Since the beginning of 2023, despite the Turkish government taking many measures to address high inflation, prices continue to rise. The persistent rapid depreciation of the Turkish lira has exacerbated economic turmoil domestically, making imported goods more expensive and posing additional obstacles to the country's economic stability.

In the long run, Turkey's stubborn inflation is worsening household poverty. According to the latest official forecasts, as consumer prices peak, the situation is expected to worsen in 2024. "Faced with staggering inflation, many households have insufficient income, and poverty has become a major issue in Turkey," said Istanbul economist Iris Cibre, noting that nearly 60% of Turkey's workforce earns a minimum wage of 11,400 lira ($405), significantly below the poverty line.

2. Geopolitical and Economic Impact on the Industry

2.1 Geopolitical Situation Promoting the Prosperity and Diversity of the Crypto Market

Turkey is located at the crossroads of the Eurasian continent, possessing geographical advantages as a bridge and hub. It is also an important energy transit country between the Middle East and Europe, controlling key routes in and out of the Black Sea. This gives Turkey a strategic position in energy supply and geopolitics, playing an important geopolitical role, with its relationships with countries like Iran and Russia significantly impacting regional stability, while also being influenced by the interrelations and cultures of the Middle East and Russia-Ukraine.

This geopolitical relationship has inadvertently made Turkey a hub connecting the Web3 industry between Russia and the Middle East, with inevitable mutual influences in culture, economy, and finance. For crypto practitioners across Eurasia, it serves as a critical node for communication, collision, and integration. From user characteristics to technological applications, and from industry extension to deep cultivation of tracks, geopolitical factors make it easier for people to engage with and accept diverse industry trends, fostering a prosperous and diverse crypto market.

2.2 Livelihood Economy Driving the Deepening of Crypto Economy

Turkey has been experiencing economic hardship and downturn over the past five years. Recent information shows that Turkey's inflation rate has recently exceeded 83%, reaching a 24-year high. Due to the government's unorthodox interest rate cuts, the lira has also hit a historic low against the dollar. "Faced with staggering inflation, many households have insufficient income, and poverty has become a major issue in Turkey," said Istanbul economist Iris Cibre, noting that nearly 60% of Turkey's workforce earns a minimum wage of 11,400 lira ($405), significantly below the poverty line.

Market-savvy funds, in stark contrast to the domestic economic downturn and the subsequent crypto bull market cycle, are inevitably seeking safe havens and chasing higher returns; exchanging and purchasing crypto assets has become the best choice. Engaging with and understanding the crypto industry through crypto assets has sparked strong interest in new technologies among young people, leading more individuals to join in and collectively promote the deepening development of the Web3 industry in the region. The crypto industry in Turkey has evolved from an emerging sector that meets public demand to a popular and cutting-edge industry with widespread participation.

3. Current Status of the Crypto Market in the Region

3.1 The Fourth Largest Cryptocurrency Market Globally

Recently (November 2023), Binance Research released a report titled "Current Status of the Turkish Crypto Market," which indicated that 40% of citizens have exposure to cryptocurrency investments, and 73% of Turkish respondents believe that the number of crypto investors will continue to increase over the next five years. Turkey ranks as the fourth largest cryptocurrency trading market globally, with its trading volume significantly higher than that of several other major economies. Internal trading data from Binance also showed that in early September this year, the Turkish lira (local currency) ranked first among all fiat trading pairs on the exchange, accounting for an astonishing 75%.

Additionally, Turkish citizens' acceptance of crypto is on par with these countries. Using the same crypto acceptance index standard for scoring, Turkey ranks 12th globally; considering its positioning in the world geopolitical economy and its relatively small size compared to other economies, Turkey's level of crypto acceptance is very high.

3.2 Strong Atmosphere and High Popularity of the Crypto Market

Poll data shows that in Turkey, Web3 and cryptocurrencies have deeply integrated into people's lives:

• Teller Machines (similar to deposit machines in Chinese banks) can conduct cryptocurrency transactions;

• Airport bridges and outdoor billboards display numerous advertisements from local exchanges;

• There are many offline venues for cryptocurrency OTC exchanges;

• Real estate transactions and offline dining also support payments in cryptocurrencies;

Many young people hang decorations with the Bitcoin logo in their bedrooms, and Bitcoin is frequently mentioned on television programs; a large number of young people view Web3 careers as the key to mastering and changing their destinies, enthusiastically engaging in sharing and communication, creating a strong technological atmosphere.

In a survey commissioned by Binance and conducted by consumer research company Twentify, over one-fifth (21%) of respondents reported investing in cryptocurrencies. In terms of popularity among investment tools, cryptocurrencies rank just behind Turkey's official currency, the Turkish lira. Notably, the adoption rate of cryptocurrencies is higher than that of traditional asset classes such as precious metals, stocks, and bonds.

3.3 High Usage Rate of CEX Compared to Decentralized Wallets

Turkish users exhibit a strong reliance on centralized exchanges (CEX). The number of daily cryptocurrency traders across all CEX platforms in Turkey reached between 500,000 and 700,000 in December 2021. However, as market conditions declined, the number of cryptocurrency trading users in Turkey fell to between 270,000 and 410,000 in February 2023. Among global CEX platforms, Binance, Bybit, OKX, and KuCoin are the most favored by Turkish users, all supporting Turkish language and Turkish lira (TRY) deposits and trading; local exchanges like Paribu and CoinTR are either based in Turkey or have obtained licenses from Turkey's Financial Crimes Investigation Board (MASAK) and have partnered with two state-owned banks, Ziraat Bank and Vakif Bank, to facilitate fiat trading.

In contrast, the usage rate of non-custodial wallets in Turkey is relatively low. Recently (November 2023), Binance officially launched the Binance Web3 wallet during Turkey Blockchain Week, and Bitget Wallet also announced plans to initiate a Turkish ecosystem development program. The convenience and profit potential of Web3 wallets, along with growing interest in emerging concepts like NFTs and the metaverse, will, to some extent, catalyze Turkish users' adoption of decentralized wallets, enhancing the diversity and maturity of the regional market.

3.4 Popular Tracks and Applications in Turkey

General users are concentrated on CEX, so DeFi-type projects are scarce; however, Gaming projects are very popular in Turkey, with GameFi, SocialFi, and NFT projects being well-received by ordinary users. There are also a few infrastructure projects, but due to the limited number of VCs in Turkey, there are even fewer making Web3 investments, resulting in overall fundraising capabilities being significantly weaker than in the Asia-Pacific and Western markets.

Among them, the Turkish government agency "Turkish Scientific and Technological Research Council" Blockchain Research Institute has a favorable view of digital currency applications. They are particularly optimistic about DID and using smart contracts to put government data on the blockchain.

4. Analysis of User Characteristics in the Region

Binance's research report shows that among the surveyed population, as many as 71% of investors check market conditions multiple times a day, and 46% of respondents conduct at least one trade on average per day, indicating a high level of investment enthusiasm among local people. 66% of the population invests in crypto assets for their expected profits, while the second reason is simple portfolio management and optimism about technology.

4.1 Higher Willingness of Young People to Invest in Cryptocurrencies

Turkey's cryptocurrency market is vibrant and continuously evolving, with 27% of cryptocurrency holders having been in the industry for less than a year, meaning that over a quarter of investors entered the market during the recent bear market, primarily consisting of individuals under 30 years old.

In the latest survey data from KuCoin regarding Turkish market users, the younger generation shows a higher willingness to invest. Among cryptocurrency investors, those aged 31-44 account for 48% of the total, while those aged 18-30 account for 37%. Turkey's cryptocurrency market is vibrant and continuously evolving, with under-30 cryptocurrency investors entering the market in the past year.

Although male investors still account for 57% of all cryptocurrency investors, the proportion of young female investors is on the rise. Among investors over 45, women only make up 37%, but nearly half (47%) of cryptocurrency investors aged 18 to 30 are female, indicating that as cryptocurrency adoption becomes mainstream, the gender gap is gradually narrowing.

4.2 Differences in Cryptocurrency Investment Preferences Across Age Groups

In Turkey, 58% of respondents indicated that their primary motivation for investing in cryptocurrencies is to accumulate wealth over the long term, a sentiment consistent across all age groups, believing that investing in cryptocurrencies can lead to wealth growth over time.

There are significant differences in investment strategies among age groups: older investors prioritize value storage and portfolio diversification, while the younger generation focuses more on the convenience of trading and short-term benefits.

• 37% of respondents mentioned that their primary reason for investing in cryptocurrencies is to store asset value, and 25% view portfolio diversification as a primary motivation, recognizing the benefits of cryptocurrencies in reducing risk, primarily among investors over 45;

• 34% hold cryptocurrencies for more convenient trading, indicating recognition of the efficiency and speed brought by crypto;

• 17% admitted that their motivation is the short-term and pure enjoyment of profit investment processes, aligning with the experimental and exploratory nature of the crypto market. This sentiment is more pronounced among the younger generation;

Bitcoin is a very popular investment choice among adult cryptocurrency investors in Turkey, with 71% expressing interest in investing in Bitcoin, including 79% of older investors; 45% of investors are interested in investing in ETH, with 52% of young investors expressing interest.

Additionally, about 33% of investors are interested in stablecoins, approximately 21% are interested in NFTs, about 19% are interested in the metaverse, and 18% are interested in emerging categories like meme coins.

4.3 The Prominent Effect of Word-of-Mouth

Surveys show that 57% of individuals were introduced to cryptocurrencies through friends or family, and 35% were introduced through community channels, highlighting the critical role of interpersonal relationships in sparking curiosity and encouraging newcomers to enter the digital finance world.

Whether through online forums, social groups, or local meetups, communities provide individuals with a supportive environment to learn about and explore cryptocurrency concepts, reflecting the collaborative nature of the Turkish cryptocurrency community. 32% of respondents noted that other traders played a role in their introduction to cryptocurrencies, indicating the interconnectedness of the trading environment, where individuals starting their cryptocurrency journey often find guidance and inspiration from other traders navigating the same unknown territory.

Finally, social media has had a significant impact, with 27% of respondents attributing their entry into the crypto world to influencers. YouTube, Twitter, Telegram, and Instagram are trusted by cryptocurrency investors, especially among the younger demographic, as reliable sources of information.

5. Regulatory Policies for the Crypto Market in the Region

In terms of blockchain and cryptocurrencies, Turkey has become a highly accepting and well-known market. Major global cryptocurrency exchanges like Binance and Huobi have taken steps to establish local exchanges in the country. The government has a vision to establish a national blockchain infrastructure and a digital currency issued by the central bank. Despite the high interest of Turks in cryptocurrencies, there are no specific regulations targeting the crypto market in Turkey.

5.1 Cautiously Open with Relatively Loose Policies

For a long time, the Turkish government's stance on Web3 has been somewhat ambiguous. Although in 2018, Turkey's Ministry of Digital and Technological Affairs mentioned in a strategy paper the establishment of a National Blockchain Infrastructure, there has been little substantial progress.

In 2021, the central bank issued a policy prohibiting Turkish citizens from purchasing or providing services based on cryptocurrencies. However, the director of the Digital Transformation Office under the Turkish presidency refuted this, stating, "The policy prohibiting crypto trading issued by the central bank at that time did not prohibit Turkish citizens from owning crypto assets."

Overall, the Turkish government maintains a cautiously open approach to the crypto industry, with neither stringent restrictive policies nor strong pushes for compliance. This has allowed Turkey's crypto market to be filled with a greater sense of freedom, which is very conducive to the rapid development and popularization of the crypto industry.

5.2 Regulatory Policies to Be Implemented in a Planned Manner

In October of this year, Turkey's Finance Minister Mehmet Simsek announced that new legislation would be introduced to cover crypto assets in order to comply with FATF recommendations. This move aims to remove Turkey from the gray list, as being listed can negatively impact a country's investment rating and reputation. On October 27, according to Cointelegraph, Turkey's official gazette released the 2024 presidential annual plan, which aims to complete Turkey's crypto regulations within the next year.

Bora Erdamar, director of the Blockchain Research and Development Center BlockchainIST, stated, "Introducing certain licensing standards will be one of the top priorities of the new regulations." He added that "the regulations may also include capital adequacy requirements, measures to improve digital security, custodial services, and proof of reserves."

The push for regulatory policies indicates that the crypto market has already taken root in Turkey. As more businesses enter and exchanges become more frequent, regulatory policies will support the prosperity and development of the crypto market, providing more convenience and security for practitioners and users.

5.3 Proposal to Establish a Central Custodial Bank for Cryptocurrencies

To prevent cryptocurrency exchanges from running away with funds, the Turkish Ministry of Finance has decided to implement a central custodial bank mechanism for cryptocurrencies. If implemented, Turkey would be the first country globally to include cryptocurrency custody services within its corporate framework, with the central bank controlling the storage and circulation of cryptocurrencies.

In the long run, the establishment of a central custodial bank for cryptocurrencies provides a solution for ensuring the security of the cryptocurrency market. It will help enhance the asset security of cryptocurrency exchanges and ensure the stable operation of the market, allowing the cryptocurrency industry to develop in a more robust and transparent direction.

However, the security of cryptocurrency exchange assets, the robustness of management, and the protection of user privacy all need to be considered in the management process. The cryptocurrency market is still in its early stages of development, and its governance path requires continuous exploration and improvement through the joint efforts of all parties involved.

Conclusion

Turkey spans two continents, Asia and Europe, and ranks highly in global GDP indicators. In recent years, the country has experienced high economic growth alongside high inflation, with the rapid depreciation of the Turkish lira exacerbating domestic economic turmoil and posing additional obstacles to economic stability. However, this has also accelerated the popularity and prosperity of cryptocurrencies within Turkey, making it the fourth largest cryptocurrency market globally, following the United States, India, and the United Kingdom.

Additionally, Turkey's population size and geopolitical factors make it a very suitable place for communication and collision among practitioners from various continents. A significant proportion of people across all age groups in Turkey are involved in cryptocurrency as a means of preserving and increasing value as part of their investment portfolios. More and more young people are becoming interested in Web3 technology and industries, actively participating in technological learning and entrepreneurship.

As Web3 technology is increasingly used and shared in the region, along with the gradual implementation of regional regulatory policies, Turkey's community activity, population size, and geopolitical factors will determine its important role in the future development of the cryptocurrency industry, making Turkey a potential paradise for crypto practitioners.