Turkish lira currency crisis

President Erdogan's demand for a 3-month series of rate cuts from 19% to 15% at the Turkish central bank has caused the Turkish lira to plummet.

The USD/TRY exchange rate had been depressed for more than a decade, but this time it lost more than 10% in a single day, reaching the lowest level on record. This is a historic event for a G20 country.

What’s worsening the economy is that Turkey’s consumer price index has accelerated over the past two years and is now well above the central bank’s 19.89% target.

When domestic inflation rises, real interest rates collapse and investment funds flee abroad. With Turkey’s foreign exchange reserves insufficient to stabilize the currency, the currency’s collapse will further accelerate this inflation and negative real interest rate trend.

Furthermore, $13 billion in Turkey’s external debt will mature this month and next month. Debt repayments will raise demand for foreign currency and put additional downward pressure on the lira.

The president’s aim in cutting rates is to spur economic growth, reduce unemployment, and increase exports. However, amidst soaring prices and political instability, Turkish citizens are facing an unprecedented decline in purchasing power at a rapid pace.

As the currency’s value accelerates downward, Bitcoin is reaching record highs against the Turkish lira.

Since the beginning of this year, it has proven to be the best-performing alternative asset compared with the US dollar and gold. As assets flee to something that preserves local purchasing power, Bitcoin offers a solution to this chaotic situation.

The major question for the future is how “the Turkish people will react” to the current situation will be watched closely.

｜Latest information for short-term holders

In the Bitcoin market, the movements of short-term holders and how these players influence bull and bear markets show that in bull markets short-term holders chase price increases and raise their cost basis. In bear markets, the short-term holders’ cost basis is higher than the price, acting as resistance to the market price.

This is best understood by looking at the Short-Term Holder Market Value to Realized Value ratio (STH-MVRV).

Currently, the cost basis of short-term holders is $52,700, making this price level an important line in market structure, and strong support is expected at this level as new funds try to defend entry prices.

｜Latest information on perpetual swap funding

The funding rate for perpetual swaps futures has almost turned neutral in recent days, and compared with a similar level in 2021, this shows how different the market structure is.

Because the derivatives market is far less biased toward the long side, if Bitcoin faces significant downward pressure, it could be driven by macroeconomic movements (as discussed in yesterday’s Daily Dive, for example, the dollar strengthening significantly).

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We look forward to your participation.

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