The Turkish government’s ambitious plan to restrict the use of cryptocurrencies to protect the local currency, the Turkish lira, faced a strong challenge from the crypto communities in the country. It’s a rare example of grassroots action effectively pressuring the government, and may provide a valuable lesson for lawmakers and organizers in other countries.

Despite President Recep Tayyip Erdogan expressing urgency in December about regulating cryptocurrencies, a bill has not been introduced yet. In late December a draft version of a crypto bill supposedly backed by the ruling party in the country, the Justice and Development Party (AKP), was leaked and circulated on social media.

Burak Tamac is a senior researcher at CryptoQuant, and Erkan Oz is an economist and journalist.

This proposed legislation sought to restrict international exchanges from operating in Turkey and ban the use of self-custody wallets – in the name of protecting the local currency against capital outflow. AKP never officially accepted that the leaked bill was drafted by the government, but many believed the bill was indeed written by a team close to the president and leaked on purpose to judge reactions.

The bill, which suggested significant restrictions on investing and using cryptocurrencies, should be opposed. Crypto adoption has accelerated in Turkey over the past two year, in part due to high inflation. My co-author and I believe that restricting crypto is a restriction on freedom, and is not only ethically and constitutionally wrong but also would worsen the country’s capital outflow problem rather than solving it.

See also: Turkey President Erdogan to Send Crypto Law to Parliament

One of the principle concerns over the bill was that it would give an unfair advantage to local exchanges over international ones, likely negatively affecting Turkish users. Many think the ruling party executives are being influenced by domestic exchanges to ban more efficient and cheaper global options, though the government has denied such accusations.

Such a ban would benefit both the government (which is trying to curb short-term dollar outflows) and Turkish crypto exchanges (that are trying to maintain their market share against foreign high-volume exchanges), but likely harm users.

Engaging with crypto users

The outrage on social media forced government actors to engage with various Turkish crypto communities to assuage their concerns about restrictions.

A meeting on the draft crypto bill was held at the Parliament on Dec. 29 by Mustafa Elitas (the former deputy economy minister from AKP). The government was also represented by Mahir Unal (the former deputy tourism minister from AKP), Omer Ileri (AKP’s deputy president) and senior bureaucrats from various government agencies including the Central Bank and Treasury.

Crypto, too, had a showing.

What happened in the meeting?

Members of various crypto communities expressed their concerns about the leaked crypto bill. My co-author, the economist Erkan Oz, detailed the prevailing concerns of crypto communities on social media as follows:

1. There are at least 5 million crypto-asset investors in Turkey, according to the report published by local crypto exchange Paribu. Therefore, the opinions of these investors and entrepreneurs should be considered during the law-making process.
2. Crypto investors do not drive foreign exchange outflow from the country, as it is generally assumed and the paramount concern of the government to protect the local currency. On the contrary, because the purchased crypto assets appreciate significantly over time, investors create foreign exchange inflows for the country.
3. Measures such as licensing, technological compliancy and capital-backing requirements should be introduced to protect retail investors.
4. The bill must not strictly prohibit investors from accessing exchanges and the use of self-custody wallets. Otherwise, Turkey’s crypto industry would turn into a closed ecosystem. Furthermore, such a ban against exchanges and wallets would engender price premium/discount between the international markets and Turkey. This would also pave the way for establishment of black markets.
5. If the draft circulating on social media is enacted in its current format, Turkey will lose the opportunity to educate software developers and entrepreneurs in the blockchain domain.

The ruling party’s officials and bureaucrats attending the meeting did not express their views on either the draft legislation or the proposals expressed by the crypto communities at that time. However, the government postponed the bill for apparently political reasons.

Turkey’s general elections will be held in June 2023, if not earlier as speculated in November 2022. AKP executives most likely advised the government officials to engage with crypto communities because they are relatively young voters keen on their freedoms.

Therefore, jeopardizing millions of voters due to a bill would not be a politically correct action before the election campaigns begin. In addition, according to many polls, the upcoming election would be one of the most vital elections for AKP to remain in power since 2002.

See also: Turkey Makes the Case for Bitcoin as Erdogan Runs the Autocrat’s Inflation Playbook | The Node

Even in Turkey, where the democratic process does not function as intended, a strong government that controls all branches of the state decided not to pass a top-down bill to regulate cryptocurrencies due to community objections.

The dynamic power of grassroots organizations prevented even an authoritarian-leaning government from passing a bill restricting the freedoms derived from using cryptocurrencies. From this perspective, we can assume regulations would be legislated more slowly than anticipated in the United States and the European Union because of the robust deliberation processes protected by the democratic structure.