Bitcoin is soaring against the Turkish Lira – but not due to increased demand. Rather, low-interest rates are causing the nation’s currency to rapidly decline, lowering its value against Bitcoin, dollars, and other currencies/ assets.
As reported by Reuters, the Lira dropped by another 5.6% against the dollar on Thursday. This followed a 100 basis point policy rate cut from the nation’s central bank on the same day.
Since September, the currency has fallen by 47% against the dollar. Worth 8.29 Lira at the start of September, the dollar’s Lira denominated value now stands above 15.6.
President Tayyip Erdogan has implemented an unusual and risky policy of heavy interest rate cuts in the face of rising prices across the country. Its cumulative easing has risen to 500 points since September, with a forecasted policy rate of 13% for the start of 2022. In response, Turks have been selling out of their currency in response, further escalating its crash.
Though not nearly at the same scale, the US has also experienced exceptionally high inflation this year. Whereas Federal Reserve Chairman Jerome Powell plans to cut bond purchases in response, Erdogan has instead chosen to raise the minimum wage by 50% in 2022. He still prioritizes lending and exports to stimulate economic recovery.
Inflation now sits dangerously high at 21%. Ipek Ozkardeskaya – senior analyst at Swissquote Bank – criticizes Erdogan’s approach.
“It is a bold move that will certainly cost Turkey a lot of money, and headache. The knee jerk reaction is a heavy selloff in the lira,” she said.
Bitcoin was created as a remedy for the rampant inflation that nations like Turkey experience under fiat currencies. Its fixed supply of 21 million coins grants it immunity to monetary debasement, earning it the name “digital gold.”
Despite being over 25% under its peak in dollar terms, the cryptocurrency just tapped an all-time high against the lira at over 799k Lira per coin.
Google trends data has reflected an increasing interest in cryptocurrencies within Turkey this year.