Bitcoin tumbles 5% from record highs amid Turkey’s crypto-payments ban starting April 30

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Bitcoin slipped as much as 5% from record highs on Friday after amid reports that Turkey’s central bank will bar the use of cryptocurrencies as a method of payment starting April 30. The move stoked fears that other nations may follow suit.

Bitcoin tumbled 5.3%, to $60,062.71, at intraday lows. Altcoins such as ether and XRP also slipped as they typically move in lockstep with the world’s biggest cryptocurrency.

Turkey’s central bank on Friday said crypto assets entail significant risks, citing four reasons: lack of regulatory oversight, volatility of market valuation, possible use for illegal transactions, and the fact that these transactions are irrevocable.

“It is considered that their use in payments may cause non-recoverable losses for the parties to the transactions due to the above-listed factors,” the bank said in a statement. “And they include elements that may undermine the confidence in methods and instruments used currently in payments.”

David Wachsman, founder and CEO of Wachsman – a global strategy firm that specializes in cryptocurrency and blockchain – said Turkey’s move to ban crypto payments impacts bitcoin primarily from a macroeconomic investment perspective.

“It implies that other countries might follow suit if they see bitcoin or other cryptocurrencies as a threat,” he said. “Moreover, Turkey on its own has had a surprising and burgeoning crypto scene over the last few years, so the fact that 82 million people may have reduced access to bitcoin is a blow in and of itself.”

Read more: Bitcoin is a headache to store, and that’s created an investment opportunity that could theoretically pay determined traders big risk-free returns by December

Cryptocurrencies have picked up steam in Turkey in the past weeks as investors sought various hedges against the unstable lira. Just this week, the company that distributes Rolls-Royce in Turkey – Royal Motors – became the first business in the country to accept payments in cryptocurrencies, Reuters first reported.

In March, the country’s currency found itself in turmoil after the dismissal of Naci Agbal, Turkey’s central bank chief, which took many by surprise. The lira tumbled 14% to a near all-time low following the news.

But Viktor Prokopenya, a London-based Fintech investor, said the move of Turkey was not surprising.

“Turkey is a very centralized and authoritarian state, which has very little desire to make decentralized technologies,” he said. “Having said that, the stance of governments changes all the time towards crypto, but the individual opinions of small countries don’t matter that much. The biggest risk to crypto comes from US regulators.”

Bitcoin this week hit record highs, inching close to $65,000, ahead of excitement over Coinbase’s listing on the Nasdaq, signifying a milestone for the broader digital currency ecosystem.

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The Turkish lira is facing an inflation spiral and its central bank may need ‘outside help’ to fight the crisis and regain foreign investors’ trust, Commerzbank says

Person counts Turkish lira bills
  • Markets are seeing a repeat of the 2018 crisis, which was also triggered by presidential policy, Commerzbank said.
  • The Turkish lira is facing the risk of a damaging inflation spiral, according to the bank.
  • Turkey’s central bank may need ‘outside help’ to fight the crisis and regain investors’ trust, the bank said.
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The Turkish lira has hit record lows this week, domestic markets are in turmoil after the surprise sacking of the head of the central bank and the currency is facing a crisis and a damaging inflation spiral, according to analysts at Commerzbank.

“The next lira crisis is upon us,” Tatha Ghose, a foreign exchange and emerging markets analyst, at Commerzbank said in a note on Tuesday.

President Recep Tayyip Erdogan installed the third central bank chief in just two years earlier in the week, firing incumbent Naci Agbal, whose approach to monetary policy had won the confidence of domestic and foreign investors alike. Agbal last week raised interest rates to 19% from 17% to head off a pickup in inflation, angering Erdogan, who has made clear he believes higher interest rates boost inflation. This contradicts traditional economic theory, which argues the reverse.

Inflation could now spiral to over 20% by the end of the year as a result, Commerzbank’s Ghose said.

“…He must truly believe that lower interest rates will solve Turkey’s current macroeconomic problems even in the short-term; otherwise it is difficult to believe that the president would risk another lira crisis already, when private sector balance sheets are reeling from a massive FX liability burden,” he said, referring to Erdogan’s macroeconomic beliefs.

“We saw similar presidential involvement in monetary policy right before the last lira crisis in 2018,” Ghose said. “This particular experiment risks ending in an FX-inflation spiral,” he added.

Whilst it is impossible to predict what form the new Turkish monetary policy will take, it is highly likely that interest rates will be cut back to around 13%, which will cause inflation to strongly accelerate in the next nine months, the Commerzbank report said.

The value of the lira against the US dollar is likely to depreciate and risks going exponential, but medium-term policies and developments are impossible to predict, Ghose wrote.

Following the firing of Agbal, investors fled the Turkish market on Monday. The benchmark Borsa Istanbul 100 index had fallen over 5% at close, but turned positive on Tuesday, similarly the lira recovered slightly. It is however still at record lows against the dollar and investors are continuing to pull funds from the Turkish market. The yield on the benchmark 10-year sovereign bond was up by more than 1 whole percentage point on the day at 19.24%, the highest since the last lira crisis in 2018.

By starting yet another cycle of unstable monetary policy, Erdogan “has thrown monetary policy credibility out of the window,” Ghose said. Even policies designed to stabilize the central bank, or rate hikes would not be enough to calm investor worries, as this cycle has repeated itself too often by now, he said.

“For the lira to stabilize, some sort of regime change, or institutional hand-over may be necessary – for example, under IMF supervision – which will restore credibility,” Ghose said.

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US tech stock futures rise as bond yields cool after Fed comments, while the Turkish lira plunges

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Jerome Powell stressed that the Fed would maintain support for the economy.

A fall in bond yields triggered a rise in US tech stock futures at the expense of the Dow Jones on Monday, with investors buying back into growth companies after the previous week’s volatility.

Meanwhile the Turkish lira tumbled as much as 15% against the dollar after the country’s president sacked a central bank chief for the third time in under two years.

Futures for the tech-heavy Nasdaq 100 index rose 0.69%, with the dip in bond yields making those more expensive sectors of the stock market more attractive.

Dow Jones futures were off by 1.2% as investors eyed a rotation out of cyclical companies, however, while S&P 500 futures were down 0.44%.

The yield on the key 10-year US Treasury note fell 4.8 basis points to 1.684% after hitting a 14-month high above 1.7% last week.

Bond yields have risen sharply in recent weeks as investors demand higher returns in response to rising growth and inflation expectations.

But the increase has made fast-growing and pricey tech stocks look less attractive, leading to a dynamic in which investors sell Nasdaq companies when yields rise and buy them up again when they fall.

Policymakers from the US Federal Reserve soothed the bond market somewhat over the weekend, as some investors worry the central bank could cut back its support sooner than expected.

Chair Jerome Powell wrote in a Wall Street Journal article: “The recovery is far from complete, so at the Fed we will continue to provide the economy with the support that it needs for as long as it takes.”

Richmond Fed President Thomas Barkin told Bloomberg TV there were no signs yet of undesirable inflation.

Asian stocks were mixed overnight, with China’s CSI 300 rising 1%, but Japan’s Nikkei 225 sliding 2.07%.

Hussein Sayed, chief market strategist at FXTM, said the fallout from the Turkish central bank debacle had knocked Japanese stocks.

“While there should not be a strong link between the Turkish lira and Japanese equity markets, it is believed that retail traders in Japan hold significant leveraged long positions in the lira as a carry trade. Hence, they have to cover these positions by selling equities in local markets,” he said.

The Europe-wide Stoxx 600 index slipped 0.09% in early trading while the UK’s FTSE 100 fell 0.32%.

Turkey’s lira tumbled to close to a record low before recovering somewhat after President Recep Tayyip Erdogan sacked central bank governor Naci Agbal. The currency was down 9.3% on Monday to $0.126.

The firing sparked concerns that Turkey could again cut interest rates, spurring more inflationary pressure.

Lee Hardman, currency analyst at MUFG, said: “Market participants are treating it as a Turkey specific problem so far, although there are clear risks that it could begin to weigh more broadly if the situation continues to escalate in the coming weeks and months.”

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