The Central Bank of Turkey recently announced a ban on the use of cryptocurrencies for payments, as regulators became increasingly nervous at the accelerated adoption of cryptocurrencies such as bitcoin as a hedge against inflation.
Tough regulatory clampdowns on cryptocurrencies by major economies have been relatively rare, with most seeking to clarify rules rather than prevent usage. The ban comes into effect on April 30. Alarmed at the country’s escalating financial predicament – with inflation reaching an annualised 15.4% in February – Turkish citizens rushed into inflation hedges like bitcoin and real estate.
“The country’s central bank cited excessive volatility and a lack of regulation as reasons for the ban; however, it’s more likely to do with the depreciation of the Turkish lira and the rate at which locals were turning to cryptocurrencies for remittance services,” explains Sean Sanders, founder and CEO of Revix – which recently looked at Turkey as an expansion opportunity before the ban was announced.
“Payment service providers cannot develop business models in a way that crypto assets are used directly or indirectly in the provision of payment services and electronic money issuance, and cannot provide any services related to such business models,” according to the new regulation.
Bloomberg also reported this week that crypto exchange Thodex’s CEO and founder, Faruk Fatih Ozer, had fled the country and was uncontactable. The move is reminiscent of Mirror Trading International’s CEO Johann Steynberg – who reportedly fled South Africa in December last year, after failing to honour fund withdrawal requests from investors in a crypto scheme that supposedly netted 23 000 bitcoin. Turkish authorities are now concerned at the fallout from this latest scandal.
South African crypto exchange iCE3 suspended trading in March after discovering discrepancies in account balances, and last month decided to initiate liquidation proceedings. Clients have been unable to get access to their crypto assets for several months.
The Turkish ban is one of several factors that resulted in a major sell-off across the crypto space last week, with bitcoin, Ethereum and other cryptocurrencies losing 15% to 20% of their values in a matter of days.
Turkey isn’t the only country looking to take tough measures on cryptocurrencies. In what would be one of the world’s strictest policies, India will propose a ban on cryptocurrencies and fines on those trading or holding the assets. China banned such trading in 2017, and Nigeria recently had all of its local crypto players bank accounts closed, slamming the brakes on Africa’s fastest-growing crypto market.
“Comparisons can be drawn between SA, Turkey and Nigeria” says Sanders: “All countries have long-term depreciating local currencies, exchange control restrictions and an unregulated crypto space.”
When asked about whether crypto will be banned in SA, Sanders comments, “It’s highly unlikely, as we do have a financial regulator that is more progressive than that of Turkey and Nigeria, who has expressed interest in growing the crypto industry locally. However, the unregulated crypto space means that it’s all the more important to use a trusted local crypto investment platform like Revix.”
“The Financial Sector Conduct Authority (FSCA) has said that regulation of cryptocurrencies is on the way, and we really do welcome this. You see, there’s not a single crypto-focused platform in SA that can get regulated. This means that bad actors, like Mirror Trading International, can operate, which rightfully impacts confidence in the crypto sector.”
The proposed SA crypto regulation would mean that all cryptocurrencies would be treated as securities, and crypto service providers – like Revix – will have to be licenced as financial services providers and subject themselves to the scrutiny of the regulator.
Though India and Turkey appear serious about enforcing a ban on cryptos, this may drive trading underground using peer-to-peer networks – as has happened in Nigeria.
When China imposed a ban in 2017 on initial coin offerings (ICOs), a way for crypto developers to raise funding, the price of bitcoin initially dropped 6%, but then recovered and quickly broke new highs. Chinese citizens switched to foreign exchanges in Hong Kong and Japan to acquire crypto assets.
Sanders points out that regulatory interference in the crypto market may have a short-term impact on prices, but historical evidence suggests regulators that ban emerging technologies are ultimately unsuccessful in achieving their goals.
“Technology beats regulation every time. Why? Technological innovation drives efficiency, and at some point, regulators need to get on the bus, or they’ll be left behind. Turkish, Nigerian and Indian authorities are going to find themselves on the wrong side of history on this debate,” says Sanders.
“The prevalence of cryptocurrencies is growing exponentially, and the brain drain from the tech and finance sectors into the blockchain space mirrors that of the early 2000s. The future is going to be more digital, more automated, and more interconnected, and this will all be driven by a combination of blockchain and AI.”
Any reputable cryptocurrency investment platform sees a need for regulation, but according to Sanders, this is not the way to do it. The Turkish Central Bank is already coming under intense pressure from the political opposition to reverse this ban.
“Cryptocurrencies are too big to ignore now, and at Revix, we believe that cryptocurrencies should form a part of most long-term diversified investment portfolios. My best advice is always to make sure that you invest with trusted partners and diversify your crypto holdings across the best performing cryptos out there. It was, for this reason, we launched our low-cost ready-made crypto baskets that operate like the JSE Top 40 or S&P500 but for crypto.”
Other ways to securely and intelligently invest in cryptocurrencies
Revix offers three crypto bundles, which are similar in nature to exchange-traded funds or unit trusts, which enable you to own a diversified basket of the world’s top cryptocurrencies, through a single investment with a low fee.
Their bundles include:
The Top 10 Bundle, which spreads your investment over the top 10 largest cryptocurrencies as measured by market cap. As with all other bundles, the portfolio is rebalanced each month to make sure that each crypto is given a weighting of exactly 10% and to ensure investors own the top cryptocurrencies. Revix’s rebalancing algorithms automatically remove any cryptocurrencies that have declined in value and fallen out of the top 10, while including any new ones that have increased in value. This bundle achieved a remarkable 900%-plus growth over the last 12 months.
The Payment Bundle, which provides exposure to the largest five payment-focused cryptocurrencies looking to become digital cash and compete with government-issued fiat currencies to make digital payments cheaper, faster and more global. These cryptos include Bitcoin (BTC), Ripple (XRP), Litecoin (LTC), Bitcoin Cash (BCH) and Stellar (XLM). This bundle achieved growth of more than 600% over the last year.
The third is the Smart Contract Bundle, which spreads your investment over cryptocurrencies that aim to revolutionise how supply chains and trading networks operate through smart contracts and decentralised applications. In much the same way that Android and IOS operating systems work with mobile applications, smart contract cryptocurrencies enable developers to build applications on top of the blockchain. These applications allow users to trade goods, cryptos, to lend, borrow and perform innumerable financial transactions – all without an intermediary, such as a stock exchange or a bank.
The jury is still out as to who will win the race to dominate the DeFi space, though Ethereum currently has a solid head start. Nipping at Ethereum’s heels are Cardano and Polkadot, which also accommodate smart contracts.
You can also buy and sell Bitcoin, Ethereum, USDC (a ‘stablecoin’ 1:1 backed by the US dollar) and a physical gold-backed token called PAX gold, where each token provides legal ownership of an ounce of gold through Revix’s online platform.
Investors can get started with as little as R150, and there are sign-up fees or monthly account fees. All customers need to do is register for an account, complete the FICA process, make a bank deposit using a unique reference provided to you and select your investment.
Brought to you by Revix.
For more information, visit Revix.
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