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Turkey has just banned the use of cryptocurrencies and Bitcoin is already feeling the strain

Shoppers browse stalls at Istanbul's Egyptian bazaar.
Shoppers browse stalls at Istanbul's Egyptian bazaar.   -   Copyright  Emrah Gurel/Associated Press
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Turkey’s central bank is banning the use of cryptocurrencies such as Bitcoin in payments for goods and services, according to a decision published in the country’s Official Gazette on Friday.

News of the ban wiped over 4 per cent off the value of Bitcoin in morning trading on Friday, falling to around $61,000 (€50,900) from a record high of nearly $64,000 (€53,400) on Tuesday.

Other smaller cryptocurrencies like Ethereum and XRP, which are closely tied to the fortunes of Bitcoin, also shed between 6 per cent and 12 per cent in value.

The decision comes as many in Turkey have turned to cryptocurrencies to shield their savings from rising inflation and the Turkish currency’s slump.

'Excessively volatile'

In a statement explaining its reasons, the bank said transactions carried out through the use of cryptocurrencies presented "irrevocable" risks.

Crypto assets are "neither subject to any regulation and supervision mechanisms nor a central regulatory authority. Their market values can be excessively volatile," the bank stated.

It also cited their use in "illegal actions due to their anonymous structures,” and their possible use "illegally without the authorisation of their holders".

The restriction would come into effect on April 30, the bank said.

The move has been criticised by Turkey's main opposition leader Kemal Kilicdaroglu who said the move was another example of "midnight bullying," a reference to Turkish President Recep Tayyip Erdoğan's late-night decision to fire Naci Ağbal, the governor of the central bank, last month.

In a series of tweets on Friday, Kilicdaroglu decried the decision as "foolishness".

Soaring inflation

The Turkish lira dipped dramatically by 15 per cent in the wake of Ağbal's sacking, with the central bank now on its fourth governor in two years.

Ağbal was widely credited with bringing the country's currency back from the brink of historic laws, with Turkey hit by spiralling inflation.

The economic turmoil currently enveloping the country has led to a surge in interest in cryptocurrencies, seeing them as inflation-proof more stable assets than the country's fiat currency.

According to data from US researcher Chainalysis, analysed by Reuters, crypto trading stocks in Turkey had hit 218 billion lira (€22 billion) from the start of February to March 24. This spiked sharply after President Erdoğan fired Ağbal.

Turkey is just the latest country to implement such a ban. In March, India announced one of the strictest crackdowns on cryptocurrencies with a new law that would criminalise the possession of crypto assets, trading or mining them as well as transferring them.

China also issued a similar ban in 2017 on cryptocurrency trading.