Is Turkey’s Regulatory U-Turn Sparking a Local Boom for Web3?

Crypto’s license to operate in any given jurisdiction can be made or broken by the view of the government or national leader. The Turkish government recently became the latest to announce a new raft of crypto regulation, but it’s been a rocky road to get to this point. For many years, the Turkish government resisted formal digital asset regulation, with President Recep Erdoğan declaring in 2021 that the country is “at war with crypto” and outlawing their use for payments. 

At that time, the government’s view appeared to be that crypto represented a competitive threat to the future development of a digital lira. However, many Turkish citizens took a different view. A survey carried out by KuCoin in September 2023 found that 52% of the Turkish population had adopted cryptocurrency, while Chainalysis’ 2023 Geography of Cryptocurrency report reveals that Turkey ranks fourth worldwide for crypto transaction volumes, behind only the US, UK, and India. In both cases, the interest in crypto is attributed to Turkey’s high inflation, which exceeded 60% in 2023, and the weakness of the lira. In September 2023, the Turkish lira became the top crypto trading pair on Binance, accounting for a staggering 75% of all fiat volume early in the month. 

Why Regulation? And Why Now? 

Even considering the high interest in crypto, the government’s U-turn on regulation is unlikely to have been made based purely on its citizens’ desire to engage with digital assets. One possible explanation is that President Erdoğan may be flexing his lawmaking powers following the electoral defeat of political opponent Kemal Kilicdaroglu in last May’s presidential elections. In contrast to Erdoğan’s anti-crypto stance, Kilicdaroglu was billed as the pro-Web3 candidate, having made election promises that included expanding Web3 platforms. The new rules could, therefore, be a way for Erdoğan to demonstrate his ability to rein in the growing interest in digital assets. 

But it’s likely that more pragmatic factors are also at play. When announcing the new regulations, Finance Minister Mehmet Şimşek alluded to the country’s aim to be taken off the FATF “gray list,” which highlights countries that fail to implement adequate measures to stamp out money laundering and terrorist financing. Having complied with 39 out of the 40 requirements, crypto legislation is the last check in the box needed for Turkey to be elevated from the list. The government’s new rules focus heavily on licensing and taxation, imposing measures such as minimal capital requirements along similar lines to the EU’s MiCA regulation. 

Accelerating Interest 

There was a time in the digital asset sector when the prospect of regulation would have had operators shutting up shop. However, in what can only be taken as a signal of growing maturity, the opposite now appears to be true. MiCA’s implementation in the EU is seen by many to have been a positive force for digital asset adoption and acceptance, and now the same appears to be playing out in Turkey. 

Within weeks of the regulatory announcement, two major banks launched crypto-related initiatives. Akbank announced it had acquired Stablex, a local crypto firm, while Garanti BBVA now offers a cryptocurrency wallet. 

However, at the grassroots level, the country has recently seen an explosion of Web3 activity, driven by burgeoning demand from Turkey’s young and fast-growing user base. One of the latest new entrants is the EOS Network Foundation (ENF), which announced a partnership with global cryptocurrency exchange CoinTR to establish the Turkish Web3 Industry Lab. 

In a speech delivered in Istanbul that was attended by representatives from the government and the finance sector, Yves La Rose, ENF founder and CEO, highlighted Turkey’s potential to become a global leader in grassroots adoption. To Nasdaq, La Rose said, “Turkey presents a unique combination of high crypto adoption, an environment shaped by economic factors favoring digital currencies, and a rapidly growing market enthusiastic about blockchain innovations. The biggest opportunities will revolve around stablecoins and TradFi’s ability to adopt and incorporate them into their day to day businesses to drive the Turkish Lira’s growth and demand at a global scale as a way to curb its hyperinflation. This is already happening with the government CBDC pilot program and Turkish banks showing a keen interest in blockchain integrations.”

Multi-chain project Serenity Shield also recently announced a strategic move into the Turkish and MENA markets thanks to a funding injection from Castrum Capital, which is one of Turkey’s largest VC investors with a specialism in AI. In addition to the geographical expansion, the collaboration will also see a deeper integration of AI into Serenity Shield’s StrongBox, a solution for secure and confidential data storage and digital asset inheritance. 

Connecting People On the Ground

Bitget Wallet is another Web3 native joining the train to the Middle East, announcing its Turkish expansion plans during the week-long Devconnect conference held in Istanbul in November. It will focus on developing partnerships with local projects and stakeholders with a view to delivering Web3 services localized for the Turkish markets. A spokesperson also confirmed that the project plans to integrate the Bitget wallet into use cases “including GameFi and SocialFi for transaction execution and value preservation.”

Devconnect is just one of many crypto-centric events held in Turkey over the last year, further underscoring the country’s status as a hub for activity among the grassroots developer and entrepreneurial community. Alongside that event, which attracts Ethereum developers, Istanbul also hosted Istanbul Blockchain Week in August, where there was a heavy focus on Islamic finance solutions. In November, Binance’s freshly-promoted CEO Richard Teng flew in to kick off Binance Blockchain Week, while Vitalik Buterin was the star attendee at the zero-knowledge tech-focused zkDay event held in the same month. 

So, if there was any hope that the announcement of regulation would create barriers and act as a deterrent, the opposite appears to be happening. After operating amid a cloud of regulatory uncertainty for several years, Web3 innovators are seeing the change as an opportunity to establish themselves on a stable footing with the certainty that regulatory clarity can bring. Now that Turkey looks set to offer a regime comparable to its EU neighbors, with the added bonus of not being on the FATF gray list, it’s primed to further develop its status as a hotbed of adoption and innovation across the Web3 spectrum. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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