WHAT’S THE PROMISE OF REGULATORY EFFORTS FOR CRYPTO ASSETS?

We will witness a rapid increase in investments in crypto assets in Türkiye following the enactment of the new law, coupled with the subsequent publication of secondary regulations six months later

Although the world was not in a state akin to that following the “big bang”, it was under the nebula of the financial crisis in 2008. During that period, the narrative of blockchain and cryptocurrencies commenced in early 2009 with the emergence of Bitcoin, which was born as a reaction. In the subsequent years, a new blockchain called Ethereum emerged, introducing smart contracts and programmable crypto assets tailored to various needs.

Given its strategic geographical location, the high adoption rate of crypto assets, advanced digital banking infrastructure, and youthful population, Türkiye is poised to claim a portion of the global crypto asset market, which currently exceeds USD 2 trillion in value. The first prerequisite for establishing trust and certainty, which are crucial in this endeavour, is to enact comprehensive legal regulations. Although legal deliberations on this matter dominated the agenda leading up to the Presidential elections in 2023, the process was postponed until after the elections.

During that period, the Markets in Crypto-Assets Regulation (MiCA), which was deemed the most significant legal regulation for crypto assets within the European Union (EU) to date, was drafted. Türkiye, on the other hand, has been persistently pursuing its legal regulatory efforts in the field of crypto assets since 2023. As a result of these efforts, a bill to amend the Capital Markets Law No. 6362 (CML) was drafted.

With legislative proposals underway in the UK and ongoing legal regulations in Dubai, United Arab Emirates, the enactment of the proposal in Türkiye would expand the crypto asset market from the UK to the European Union, Türkiye, and the Middle East. This would also offer significant clarity for investors in a major economic region. Certainly, given Türkiye’s approach of adopting EU regulations as a model and aligning its domestic laws with the EU acquis, MiCA holds considerable importance for legal regulations in Türkiye.

For this reason, you can find the table summarizing the main topics covered by MiCA and the Proposal at the end of the article. Since the provisions in the Proposal may undergo certain changes before becoming law, it would be more accurate to interpret Türkiye’s initial reflexes and approach without delving into the legal analysis of the Proposal. To date, we have witnessed three main approaches in legal regulations regarding crypto assets worldwide.

1. Creating a specific legal framework for crypto assets and assigning one of the existing regulatory bodies as the competent authority

2. Incorporating provisions concerning crypto assets into existing laws and appointing one of the existing regulatory institutions as the competent authority

3. Implementing a dedicated legal framework for crypto assets and establishing a new regulatory body specifically for overseeing crypto assets Türkiye has indicated that it has adopted the second approach with the Proposal.

While MiCA comprehensively regulates specific issues related to crypto assets, Türkiye has opted to establish framework provisions on certain matters through amendments to the CML. Many details regulated in MiCA are left to be addressed in secondary regulations of the Capital Markets Board (CMB), which is designated as the competent authority. I highlighted Türkiye’s aim to secure a share of the global crypto asset market as the primary driver behind the Proposal. For the other factor, it can be stated that Türkiye’s inclusion in the Gray List and the legal regulation regarding crypto assets represent the final necessary steps to facilitate its removal from this list.

At first glance at the Proposal, it appears that the second factor is more prominent. In the Proposal, we observe the influence of this factor through the introduction of criteria for crypto asset service providers at the banking level rather than intermediary institutions in the capital market. Additionally, there is an intention to establish stringent criteria to effectively regulate the sector. Certainly, while these criteria will instil confidence in investors, achieving a balance is paramount. We can anticipate that certain provisions will be subject to revision during the enactment process of the Proposal. In any case, I believe we will witness a rapid increase in investments in crypto assets in Türkiye following the enactment of the new law, coupled with the subsequent publication of secondary regulations six months later.