‘Venezuelan Petro’ oil-backed crypto for devaluation, Turkey ponders over cryptocurrency to get rid of Trump and hyper-inflation

Cryptocurrencies have become progressively admired in nations like Venezuela, where the domestic economy is in turmoil and their currency has been besieged. Where store of value has been the cause of concern, Bitcoin has now become a popular option and many perceive it as digital gold instead of a payment system. 

As the Turkish lira’s crisis intensifies, the crumbling economy of Turkey could also turn to bitcoin in its hour of need as the pioneer cryptocurrency’s prime objective is meant for an alternative solution to hyperinflation and a collapsing currency.

It’s the latest wrinkle in an international political tussle financially breaking a great many Turks in its wake. Consequently, the country’s fiat currency is down some 40% against the greenback, hyperinflation has gone out of control, and politicians are ramping up nationalism in an effort to avoid widespread calls for basic economic reform, raising interest rates, seeking International Monetary Fund assistance, etc. The lack of diplomatic agreement could bring about yet another round of US economic sanctions against Turkey.

Well, this seems to be a good time to recapitulate two developments late last week: 

1) The CBT survey of inflation expectations was published on Friday: expectation for end-2018 inflation worsened notably from an already bad 13.9% to 16.5% in August; the market expects some moderation back to 13% levels by Q3 2019, but this level is hardly encouraging.

The market consensus, even before last week's lira crisis, was for 18% inflation by this year-end; it will very likely have to be revised higher as the lira exchange rate shows no sign of heading back to its old range. The market's GDP growth forecast for this year also fell by 0.5pp in August. 

2) Turkey's consumer confidence index dropped 4.8pts m/m in August and now looks similar to the business sentiment and PMI indicators, which declined sharply over the past couple of months. 

Overall, the Turkish lira crisis is rapidly filtering through to inflation and economic sentiment, which opens the door for second-round impacts. The longer the problem persists, the larger this impact will be.

Eiland Glover, Founder and CEO of Kowala commented: "Interest rate manipulation by the central bank appears to be Turkey's only option. But what about a future where in which governments lack much of the power to create such economic crises in the first place? We are witnessing the end to the nation-state’s monopoly on the creation of money.” 

Amid the aforementioned crisis, an instantaneous asylum seems to be shifting Turkish lira into bitcoin (BTC), and a virtual stream of such developments on exchanges such as Local bitcoins are observed the recent past. Although the Turkish government has also seemed to have enticed the public to refrain from foreign currency (especially USD), locals seem to be quietly ditching theirs for cryptocurrency.

All these factors are the driving forces for Turks to flinch at reported premiums of 25% to unload into BTC as lira has been conflicting with USD. Courtesy: Commerzbank

Currency Strength Index: FxWirePro's hourly BTC spot index is inching towards 110 levels (which is bullish), while hourly USD spot index was at -139 (bearish) while articulating (at 12:00 GMT). For more details on the index, please refer below weblink:

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