Following the collapse of two local cryptocurrency exchanges and new regulations banning cryptocurrency-based payment services, the Turkish government is now reportedly planning to institute new measures to serve as a custody middleman for cryptocurrency investors.
“The government is planning to establish a central custodian 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. “Authorities are also pondering a capital threshold for exchanges and education requirements for executives at such firms.”
Earlier this month, Turkey instituted a ban on all cryptocurrency payment services, as its own fiat currency, the lira, continues to be devalued. Then, the CEO of local cryptocurrency exchange Thodex fled the country, leaving user funds irretrievable. Days later, local cryptocurrency exchange Vebitcoin ceased all activities.
The plans are reportedly unfinalized, at least weeks away from being implemented and there were no details about how the rules would apply to bitcoin custody specifically. But presumably the world’s leading cryptocurrency would be included.
The implications of a central bank serving as a custodian for bitcoin exchanges are unprecedented. Bitcoin was designed as a financial vehicle that circumvents the policies and practices of central banks. By controlling the private keys for any bitcoin purchased on a Turkish exchange, the country’s central bank would ultimately have power over those funds. Only if users were to fully withdraw their bitcoin from the exchange, and therefore take control of the private keys from this custodian, could they really control an asset free from government oversight.