Is Turkey becoming the world's fourth largest cryptocurrency market? Interpreting its new regulatory policy 'Capital Market Law Amendment'

In recent years, Turkey has become one of the key players in the global cryptocurrency market, thanks to its substantial cryptocurrency volume. According to statistics, Turkey is now the fourth largest cryptocurrency trading market in the world, following the United States, India, and the United Kingdom.

The Turkish people’s enthusiasm for Crypto Assets stems from the country’s economic instability and currency depreciation. Faced with high inflation and the continuous weakening of the lira, more and more Turkish people regard Crypto Assets as an important tool for hedging economic risks and preserving value.

*During the period from the end of 2020 to the end of 2023, the Turkish lira depreciated by more than 300% (Image source: Kaiko)

On August 23, affected by factors such as high domestic inflation, the Turkish lira fell to a new historic low against the US dollar with an exchange rate of over 34 to 1. On that day, in the Turkish forex market, the exchange rate of the lira to the US dollar fell to 34.049 to 1, and then slightly rebounded. According to local media reports, the exchange rate of the Turkish lira against the US dollar has fallen by about 15.2% so far this year.

Although the cryptocurrency market in Turkey is huge, there has been a lack of clear regulatory framework for many years, which has kept the country’s cryptocurrency industry in a legal gray area.

Although the Central Bank of the Republic of Turkey has issued a ban in 2021, prohibiting the use of Cryptocurrencies such as BTC for payments, this measure has not completely regulated the entire market. With the increasing global attention to Cryptocurrency regulation, Turkey has also begun to gradually strengthen its management in this field.

Turkish encryption regulation clarification

The ‘Capital Market Amendment Act’ passed by the Turkish Parliament in June and effective in July this year has triggered widespread attention in the encryption industry, and the Capital Market Board (CMB) of the country has emphasized that it has established a preliminary regulatory framework for encryption asset service providers in Turkey. Specifically includes:

1. CMB is designated as the encryption industry regulatory unit, empowered to authorize operation, supervise, sanction, and take measures.

2. Establishing criminal liabilities for unauthorized operation of encryption businesses, misappropriation of user assets, fraud, etc.

3. The trading platform needs to establish a monitoring system to identify, prevent, restrict, and report market manipulation and security incidents.

Currently, even without a comprehensive Cryptocurrency regulatory system, the existing regulations in Turkey still have a certain degree of regulatory impact on the market, including the Central Bank of the country’s prohibition on the use of Cryptocurrency for payment, as well as the requirement of the Financial Crimes Investigation Board (MASAK) for exchanges to collect KYC data to maintain anti-Money Laundering measures.

However, Turkish Finance Minister Mehmet Simsek also revealed earlier this year that a more comprehensive encryption regulatory bill has reached the final evaluation stage, which is expected to provide clear legal sources for encryption wallet providers, encryption asset service providers, encryption asset custodians, and other related entities.

Policy Interpretation: Revised Amendment to the Capital Market Law

On July 2, 2024, the Turkish government officially passed Amendment No. 7518 to the Capital Market Act, establishing a clear legal framework for the operation of Crypto Assets Service Providers (CASPs). This revision marks a new era of compliance for the Turkish cryptocurrency market.

1. Turkey: Background of the ‘Capital Market Amendment Law’

Since 2021, Turkey has been placed on the FATF grey list due to Money Laundering risks. In order to escape from this unfavorable situation and clarify the taxation policy of Crypto Assets, Turkey has begun to intensify its regulation in this field. Now, Turkey has successfully been removed from the grey list, and a new regulatory framework has been introduced, laying the foundation for the standardized development of the Crypto Assets market.

2. The new regulations of the Capital Market Committee (CMB) are introduced

On July 2, 2024, the Capital Market Board (CMB) of Turkey officially announced Amendment No. 7518 to the Capital Market Law, bringing the regulation of Crypto Assets Service Providers (CASPs) into the legislative scope. This marks a new stage in the regulation of Cryptocurrency in Turkey, requiring all CASPs to obtain CMB’s approval and comply with the standards set by TUBITAK. In addition, activities related to banks also require approval from the Banking Regulation and Supervision Agency (BDDK). These regulations not only strengthen supervision but also provide guarantees for the healthy development of the Crypto Assets industry.

Three, the establishment conditions of the encryption asset platform

According to the new regulations, the establishment of 01928374656574839201 asset platforms must meet the following conditions:

1. The platform should be established as a limited company with a minimum paid-in capital of 50 million Turkish lira.

2. All shares shall be issued in cash and registered.

3. Founders and managers must comply with the Capital Market Law and other relevant laws, and have sufficient financial strength, honesty, and trustworthiness.

4. The business scope of the encryption asset platform should be clear, covering activities such as purchasing, selling, initial issuance, distribution, clearing, transfer, and custody.

4. Transition and Liquidation of Platform Operation

The new regulations require encryption asset service providers currently operating in Turkey to submit the required documents to the CMB within one month. Companies that fail to submit the application must make a liquidation decision within one month. Temporary operating platforms must submit a platform operation license application before November 8, 2024, otherwise they will face eviction.

During the transition period, a total of 76 exchanges have been granted temporary licenses to continue operations and are required to comply with the new regulations. At the same time, 8 exchanges that did not meet the requirements have been asked to withdraw.

V. Strict Regulation and Punitive Measures

The new regulations have established severe penalties for individuals and institutions engaging in encryption asset services without authorization. Individuals and legal persons who violate the regulations will face imprisonment of 3 to 5 years and a fine of 5000 to 10000 days. Misappropriation of entrusted funds or assets will result in even harsher penalties, with a maximum sentence of 14 years in prison and a substantial fine.

Criminals involved in fraudulent activities to conceal embezzlement will face imprisonment of 14 to 20 years and a maximum fine of 20000 days. In addition, individuals who illegally exploit the resources of encryption asset service providers whose licenses have been revoked will also face imprisonment of up to 22 years and a fine of 20000 days.

Impact and Prospects of Regulatory Framework

The ‘Capital Market Amendment’ marks a crucial step for Turkey in the regulation of Crypto Assets. This amendment establishes a clear legal framework for encryption asset service providers (CASPs), making the operation of the Crypto Assets market more standardized and transparent.

Enhanced market trust and stability: The amendment introduces stricter regulatory standards for the Cryptocurrency market, bringing in greater transparency and accountability. This not only helps to enhance investor trust in the market but also prevents the occurrence of improper conduct, thus laying the foundation for the long-term stability of the market.

Promoting the development of Compliance and standardization: The amendment requires encryption asset service providers to obtain licenses from CMB and comply with strict operating standards. This requirement will promote the standardization of the industry, eliminate non-compliant market participants, and encourage more compliant enterprises to participate in market competition.

International enterprises’ entry into the competition in the encryption market: After the amendment was enacted, multiple internationally renowned exchanges have applied for licenses, demonstrating the attractiveness of the Turkish market to international enterprises. This trend may intensify market competition, while bringing more advanced technologies and services, further promoting the development of the Turkish encryption market.

The intensification of regulatory efforts and market integration: The amendment not only sets stricter regulatory standards, but also establishes severe penalties for illegal activities. This will help clean up illegal activities in the market, promote a healthier and more transparent market, and attract more legitimate enterprises to participate.

The potential for market rise: Turkey is the fourth largest crypto assets trading country in the world. With the implementation of this amendment, the crypto assets market may usher in new growth opportunities. Benefiting from a more clear legal framework, participants in the Turkish market will have the opportunity to develop and expand their business in a more stable environment.

The ‘Capital Market Amendment’ not only brings new order and regulations to Turkey’s cryptocurrency market, but also lays a solid foundation for its future development. With the participation of more enterprises and the gradual maturity of the market, the Turkish cryptocurrency market is expected to usher in a new round of prosperity.