The Turkish government, known for having one of the largest cryptocurrency economies worldwide, is anticipated to introduce new legislation concerning cryptocurrencies sometime this year.
In January, Turkish Treasury and Finance Minister Mehmet Simsek announced that the local crypto legislation was nearing completion. Many expected that the Turkish parliament would begin regulating the crypto market in early 2024, but the draft legislation has yet to be presented.
While Turkey’s lack of regulatory clarity on cryptocurrencies may leave some wondering about the timing of the legislation and the current state of crypto regulation in the country, Cointelegraph spoke with local industry enthusiasts to shed some light on the matter.
Despite the absence of official crypto legislation, Turkey already has some “light” regulations in place. Ismail Hakki Polat, a local cryptocurrency mentor, explains that there are currently “very slight regulations” that target crypto in Turkey, but they are not set by the parliament.
There are two main crypto-related regulations in Turkey. The first, initiated by the Central Bank of the Republic of Turkey in 2021, prohibits crypto holders from using cryptocurrencies like Bitcoin (BTC) for payments, as these assets are not considered legal tender. However, since this regulation was not passed by the parliament, the consequences and penalties for violating these rules are unclear.
The second regulation pertains to Anti-Money Laundering (AML) measures and operates under the supervision of the Financial Crimes Investigation Board, known as MASAK. This regulation requires exchanges to collect certain Know Your Customer (KYC) data from users to prevent illicit activities such as money laundering and terrorism financing.
Tansel Kaya, CEO of Mindstone Blockchain Labs, mentions that the Capital Markets Board of Turkey (CMB), also known as SPK, has issued guidance related to cryptocurrencies. According to the CMB’s guidance from 2017, anyone or any institution under its authority is prohibited from trading cryptocurrencies. This includes Turkish banks and broker dealers. Kaya emphasizes that this regulation is outdated.
Turkey is currently the fourth-largest crypto trading market globally, with an estimated trading volume of $170 billion. This puts Turkey ahead of countries like Russia, Canada, Vietnam, Thailand, and Germany in terms of crypto market size.
In September 2023, Turkey’s national currency, the lira, became the top cryptocurrency trading pair on Binance, accounting for 75% of all fiat trading volume. This surge was attributed to a significant increase in crypto investors in the Turkish market.
Studies indicate that Turkey’s adoption rate of cryptocurrencies has more than doubled in recent years, reaching 40%. It is suggested that two out of every five Turkish citizens hold crypto, estimating the number of Turkish cryptocurrency investors to be around 20 million.
The anticipated crypto legislation in Turkey aims to help the country exit the Financial Action Task Force’s (FATF) “gray list” related to Anti-Money Laundering (AML) measures. The FATF placed Turkey on its “gray list” in October 2021 due to its inadequate regulation of the nonprofit organization sector. Turkey needs to address 39 action items, including those related to the crypto industry, to be upgraded from the “gray list.”
The upcoming crypto regulatory legislation in Turkey will primarily focus on regulating and licensing crypto exchanges, referred to as virtual asset service providers (VASPs) in the FATF’s framework. The law will also establish standards for safe custody of crypto assets by VASPs to ensure investor protection. The collapse of Thodex, a major local crypto exchange, has highlighted the need for such regulations. Thodex abruptly suspended trading and withdrawals in April 2021, and its founder, Faruk Fatih Özer, was later sentenced to 11,196 years in 2023 for fraud.
In addition to VASP regulations, the forthcoming crypto law is expected to establish a legal foundation for crypto taxes in Turkey. The country’s Revenue Administration plans to impose low-rate transaction taxes on crypto, including the Banking and Insurance Transactions Tax (BSMV). The current rate for the BSMV is 5%. Citizens will likely be required to declare their earnings from crypto, but the withholding tax rate is expected to be set at zero.
The exact timing of when Turkey will introduce its crypto legislation remains unclear, despite initial expectations for progress earlier this year. Some industry observers believe that the introduction of Turkey’s crypto law may coincide with the upcoming meeting of the U.S. Office of Foreign Assets Control in June. The law would need to be passed and the regulations enforced before Turkey can be considered for removal from the “gray list.” The regulation is anticipated to be introduced in May, with the possibility of it being finalized by the end of the parliamentary season in June.