At least four Turkish cryptocurrency platforms have gone offline since last week, with some claiming liquidity problems, after police began investigating fraud allegations connected to the exchanges and the central bank introduced measures to regulate the market for the first time.
The crackdown from Turkish authorities happened as the lira traded at its weakest against the dollar since November. Demand for bitcoin has surged in Turkey as investors attempt to use cryptocurrencies to protect themselves after a 35 per cent drop in the lira against the dollar in the past two years.
Turkey has an estimated 40 cryptocurrency exchanges and 5m investors, according to analysts.
Over the weekend, the country’s financial crimes unit froze the Turkish bank accounts of trading platform Vebitcoin and police detained four of its employees on allegations of fraud, the state-run Anadolu news agency reported.
The operations came after Vebitcoin said on its website late last week that extremely high demand had “put our company in a very difficult financial situation” and it would halt activities in order to fulfil orders. Another exchange, Goldexco, wrote on its website it was facing an “unjustified smear campaign”, without offering details, and asked investors to email their requests for refunds of their money.
A court on Monday remanded in custody six people affiliated with the Istanbul-based Thodex platform, according to local media. Last week, police had detained 62 people and issued an international arrest warrant for Thodex’s chief executive, who is accused of fleeing the country with investors’ money.
A central bank decree published on April 16 barred the use of digital money to pay for goods and services. While it did not prohibit trading crypto assets, the measure stoked confusion about whether buying digital money as an investment constituted a payment.
Central bank governor Sahap Kavcioglu called the charges of fraud at the exchanges “a very sensitive issue” in a televised address on Friday. “There is an astounding flow of crypto money overseas, and this is very distressing,” he said.
The government is planning to announce a comprehensive regulatory framework in the coming weeks, but has “no intention” of prohibiting cryptocurrency outright, he added.
The investigations into Turkey’s cryptocurrency companies follow an 18-month probe of Sistemkoin, another platform. Its founders and eight other people were detained on suspicion of fraud in late March, Sozcu newspaper reported at the weekend. The Istanbul prosecutor’s office could not comment on the investigations.
Chainalysis, a blockchain analysis company, reported that Turkey has the highest volume of crypto transactions in the Middle East. The price of bitcoin against the Turkish lira has risen 95 per cent since the start of the year.
Yasin Oral, owner of one of Turkey’s largest crypto exchanges Paribu, told Hurriyet newspaper that investors’ confidence in the digital money market has been shaken by the recent scandals, setting off a domino effect.
“Foreign cryptocurrency exchanges have set up front companies in Turkey. They don’t have headquarters or sufficient paid-in capital adequacies,” Oral said.
“I have long expressed my concerns about small platforms, that there are problems in this area, that if something happens to them, the whole ecosystem will suffer.”
The lira continues to be a marked underperformer among emerging markets currencies owing to rising diplomatic tensions between the US and Turkey and crumbling confidence in the policy decisions of both the government and the central bank.
“The outlook for Turkey continues to darken,” wrote Ilan Solot, a strategist at US bank Brown Brothers Harriman.