Turkey plans to custody Bitcoin

After the collapse of two local cryptocurrency exchanges and new regulations banning cryptocurrency-based payment services, the Turkish government is reportedly planning to take new measures to serve cryptocurrency investors as custodian intermediaries.

“The government plans to set up a central bank to eliminate counterparty risk following the collapse of the Thodex and Vebitcoin exchanges last week, according to a senior official familiar with the plans,” Bloomberg reported. “The authorities are also considering a capital threshold for exchanges and training requirements for executives in such companies.”

Earlier this month, Turkey put a ban on all cryptocurrency payment services as its own fiat currency, the lira, continues to devalue. Then the CEO of the local cryptocurrency exchange Thodex fled the country, leaving user funds irretrievable. Days later, the local cryptocurrency exchange Vebitcoin stopped all activities.

The plans are reportedly not finalized, at least weeks ahead of their implementation, and there were no details on how the rules would apply specifically to Bitcoin custody. But presumably the world’s leading cryptocurrency would be included.

The impact of a central bank acting as a custodian for bitcoin exchanges is unprecedented. Bitcoin was developed as a financial instrument that bypasses central bank policies and practices. By controlling the private keys for Bitcoin bought on a Turkish exchange, the country’s central bank would ultimately have power over those funds. Only if users were to completely withdraw their Bitcoin from the exchange and therefore take control of the private keys from this custodian, could they truly control an asset that is free from government oversight.

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