Cryptomania Hits Home in Turkey With Losses, Arrests and Manhunt

Taylan Bilgic, Bloomberg News

ISTANBUL, TURKEY - APRIL 16: A Bitcoin sign is seen at the entrance of a cryptocurrency exchange office on April 16, 2021 in Istanbul, Turkey. , Chris McGrath/Getty Images

(Bloomberg) -- Cryptocurrency mania is getting a wake-up call in Turkey after two local exchanges crumbled in the space of a few days.

The collapse of Thodex and Vebitcoin has triggered a manhunt for one of the exchange founders, led to dozens of arrests and inflicted untold losses on ordinary Turks. In the wake of a pledge last week by the central bank to tighten regulations surrounding cryptocurrencies, one Istanbul-based exchange said Monday it will establish a custodian firm to reassure investors.

“This market looks like a bottomless pit and regulation is absolutely needed,” said Orkun Godek, the head of research at Istanbul-based Deniz Investment. “Risks may trigger new risks. People may close positions elsewhere to counter their crypto losses.”

The two exchanges were part of a cryptocurrency boom that has drawn in legions of Turks seeking to protect their savings. Inflation hit 16.2% in March, more than three times the central bank’s target, while the lira has weakened more than 10% against the dollar this year, headed for its ninth consecutive year of losses.

The turmoil began Wednesday when Istanbul-based Thodex halted trading and its 27-year-old Chief Executive Officer Faruk Fatih Ozer disappeared. He’s still on the run along with nine others. The state-run Anadolu Agency said Monday 62 people related to the collapse have been questioned and sent to court for their depositions.

On Friday, Vebitcoin, an exchange based in the southwestern city of Mugla, halted operations citing deteriorating financial conditions. Chief Executive Officer Ilker Bas and three other employees were detained, the Anadolu Agency reported. The Financial Crimes Investigation Board blocked Vebitcoin’s accounts and opened an investigation.

Thodex had about 390,000 users, according to a lawyer representing its investors. Volume was $744 million as of Wednesday, according to CoinGecko.com, which tracks the data. Vebitcoin had close to $60 million in daily volume.

The saga has drawn the ire of regulators. Central Bank Governor Sahap Kavcioglu said last week more regulations are in the pipeline after a move April 16 to ban cryptocurrencies as a form of payment starting April 30, while payment and electronic-money institutions will be prohibited from mediating transfers to cryptocurrency platforms.

In an effort to allay investor concerns, Istanbul-based BTCTurk, whose 3 million users make it one of Turkey’s biggest cryptocurrency exchanges, said Monday it will start offering custodian services to clients. Operations will begin in the final quarter and be open for the use of other crypto exchanges, Ozgur Guneri, BTCTurk chief executive officer, said Monday.