The Rise of the Turkish Crypto Assets Market: Analysis of New Regulatory Policies

In recent years, Turkey has played an increasingly important role in the global Crypto Assets market, with its trading volume rising to fourth place in the world, behind only the United States, India, and the United Kingdom. This phenomenon is closely related to the country's economic instability and currency devaluation. Faced with high inflation and a continuously weakening local currency, many Turkish citizens view Crypto Assets as an important tool for hedging economic risks and preserving value.

On August 23, due to factors such as high domestic inflation, the Turkish lira hit an all-time low against the US dollar, dropping to 34.049 to 1 at one point. According to reports, the Turkish lira has declined by about 15.2% against the US dollar this year.

Although Turkey's Crypto Assets market is large, it has long lacked a clear regulatory framework, leaving the industry in a legal gray area. In 2021, the Central Bank of Turkey issued a ban on the use of Bitcoin and other Crypto Assets for payments, but this measure did not fully regulate the market. As global attention to Crypto Assets regulation increases, Turkey has also begun to gradually strengthen its management of this sector.

New Trends in Turkey's Crypto Regulation

In June of this year, the Turkish Parliament passed the "Capital Markets Law Amendment," which came into effect in July. The country's Capital Markets Board (CMB) emphasized that this amendment establishes a preliminary regulatory framework for Turkey's Crypto Assets service providers. The main content includes:

1. Designate the CMB as the regulatory body for the crypto assets industry, granting it powers of authorization, operation, supervision, and sanction.
2. Set criminal liability for unauthorized operation of Crypto Assets business, misappropriation of user assets, and fraud.
3. Require trading platforms to establish monitoring systems to identify, prevent, restrict, and report market manipulation and security incidents.

Although Turkey has not yet established a comprehensive regulatory framework for Crypto Assets, the current regulations still exert some constraints on the market. For example, the central bank prohibits the use of Crypto Assets for payments, and the Financial Crimes Investigation Board (MASAK) requires exchanges to collect KYC data to maintain anti-money laundering measures.

Turkey's Finance Minister Mehmet Simsek has revealed that a more comprehensive encryption regulatory bill has entered the final evaluation stage, and it is expected to provide clear legal basis for operators such as crypto wallets, Crypto Assets service providers, and Crypto Assets custodians.

Interpretation of the New Amendment to the Capital Markets Law

On July 2, 2024, the Turkish government officially passed the Capital Markets Law Amendment No. 7518, establishing a clear legal framework for the operations of Crypto Assets service providers (CASPs), marking the entry of Turkey's Crypto Assets market into a new era of compliance.

Background of the Amendment

Since 2021, Turkey has been placed on the FATF gray list due to money laundering risk issues. To improve this situation and clarify the taxation policy for Crypto Assets, Turkey has intensified its regulatory efforts in this area. Now, Turkey has successfully removed itself from the gray list, and a new regulatory framework has been introduced, laying the foundation for the standardized development of the Crypto Assets market.

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1. All Crypto Assets service providers must obtain CMB permission and comply with the standards set by TUBITAK.
2. Activities related to banks must be approved by the Banking Regulation and Supervision Agency (BDDK).
3. Crypto Assets platform establishment conditions:
   • Must be a joint stock company, with a minimum paid-in capital of 50 million Turkish Lira.
   • All shares must be issued in cash and registered.
   • Founders and managers must comply with relevant legal regulations and possess economic strength, integrity, and reputation.
   • The scope of operation should be clear, including activities such as purchase, sale, initial issuance, distribution, clearing, transfer, and custody.

Transition and Settlement Regulations

• Existing operators must submit the required documents to CMB within one month, otherwise they must liquidate.
• Temporary operating platforms must apply for formal licenses by November 8, 2024.
• Currently, 76 exchanges have obtained temporary licenses, while 8 non-compliant exchanges have been asked to exit.

Penalty Measures

• Unauthorized providers of Crypto Assets services will face 3 to 5 years of imprisonment and a fine ranging from 5000 to 10000 days.
• Misappropriation of entrusted funds or assets can result in a maximum sentence of 14 years in prison and hefty fines.
• Fraudulent activities can result in imprisonment of 14 to 20 years and a maximum fine of 20,000 days.
• Those who illegally exploit the resources of CASPs with revoked licenses may face up to 22 years in prison and a fine of 20,000 days.

The Impact and Prospects of Regulatory Frameworks

The introduction of the "Capital Markets Law Amendment" marks an important step for Turkey in the field of Crypto Assets regulation, bringing the following impacts to the market:

1. Enhance market trust and stability: Strict regulatory standards improve market transparency and accountability, helping to prevent misconduct and promote long-term stable development.

2. Promote Compliance and Standardization: The new regulations require the elimination of non-compliant participants, encouraging more compliant companies to engage in market competition.

3. Attracting international enterprises: Several internationally renowned exchanges have applied for licenses, which is expected to bring advanced technology and services, promoting market development.

4. Strengthen regulatory efforts: Strict penalty measures help to eliminate illegal activities in the market and attract more legitimate companies to participate.

5. Market Growth Potential: As the world's fourth largest Crypto Assets trading country, Turkey's market is expected to welcome new growth opportunities under the new framework.

With the implementation of the Capital Markets Law Amendment, Turkey's Crypto Assets market is ushering in a new order and regulations. This not only lays a solid foundation for the future development of the market but also provides participants with a more stable operating environment. As more enterprises join and the market gradually matures, Turkey's Crypto Assets market is expected to welcome a new round of prosperity.