Turkey will introduce a tax on cryptocurrencies and supervise exchanges. What you need to know.

Turkey's ruling Justice and Development Party plans to submit a cryptocurrency market regulation bill to parliament. The forthcoming law will adhere to international standards, as authorities intend to implement taxes and full regulation of crypto asset transactions.

 Regulation of the cryptocurrency sphere in Turkey has been under discussion for several years, with initial versions of bills emerging as early as 2021. The updated document is expected to, among other things, address some of the grievances the country faces from the Financial Action Task Force (FATF). It is anticipated that if the law is passed, FATF may remove Turkey from the grey list, where it was placed due to deficiencies in anti-money laundering and counter-terrorism financing measures.

The FATF rating categorizes countries based on their level of compliance with the international group's recommendations, which include 40 key recommendations. Methods for controlling and combating suspicious operations with virtual assets and cryptocurrencies are covered in a separate recommendation, under number 15.

In February, Russia experienced a downgrade in one of its FATF ratings due to insufficient regulation of virtual assets and cryptocurrencies. The rating was lowered from "compliant" to "partially compliant."

In September 2023, the analytics company Chainanalysis published a study indicating that Turkey ranks among the top 20 countries in terms of cryptocurrency adoption, slightly ahead of Russia according to several market indicators developed by the company.

Consequences for exchanges and traders The updated Turkish bill will include a comprehensive set of measures. All transactions involving the buying and selling of crypto assets are planned to be made accountable and subject to taxation. Additionally, the document implies the development of licensing rules for cryptocurrency exchanges, trading platforms, and brokers, as well as rules governing the relationships between clients and these platforms.

The main regulator for the crypto market will be the Capital Markets Board. It will be responsible for granting permissions for any developments and commercial services related to blockchain and distributed ledger technology. It is expected that the involvement of the government and an expert council on scientific and technological research will incentivize local developers to create and distribute relevant software and tools.

Turkey is among the top five markets in the world in terms of cryptocurrency users. The law will primarily benefit local platforms such as BtcTurk and Paribu, allowing them to be among the first to obtain the necessary licenses, as stated by Gleb Kostarev in the Telegram channel. He previously oversaw markets in Asia and Eastern Europe for the world's largest cryptocurrency exchange, Binance.

Local branches of the world's largest cryptocurrency exchanges, such as Binance and OKX, will also seek licensing, noted Kostarev. However, the question of regulating the activities of global exchanges, whose local branches are licensed, remains open. According to expert estimates, Turkey accounts for 6% of Binance's international traffic. Turkish traders represent 6 to 10% of second-tier platforms such as Gate or MEXC.

"For example, Binance Turkey and [global] Binance are currently available in Turkey. BtcTurk will advocate for the prohibition of global branches in Turkey, arguing that this is necessary to protect the local market from risky financial instruments. Global exchanges, in turn, will insist on continuing the operation of both their international and local branches, citing their right to operate in Turkey due to licensing and proposing restrictions on marketing activities as a compromise," Kostarev writes.

Considerable attention is also given to Turkish crypto traders' use of leverage, Kostarev adds. Local licensed platforms, according to him, will not be able to offer this instrument without an additional brokerage license. This makes global cryptocurrency exchanges a more attractive option for traders. The local BtcTurk has already obtained such a license in advance. Its clients will have access to instruments such as perpetual futures, but in limited quantities.

Perpetual futures (or perpetual swaps) are one of the most popular derivatives on cryptocurrency exchanges. On BitMEХ alone, which launched this instrument in 2016, trading volume exceeded $3 trillion.

According to Kostarev, Turkish banks also insist on the exclusive right to custody services for storing crypto assets, i.e., the actual storage of cryptocurrency for exchanges and other crypto services. He notes that Turkish banks have previously successfully lobbied for a ban on cooperation between local exchanges and payment systems.