One may ask whether cryptocurrency can be classified as property in Turkey? The increasing use of cryptocurrency as an instrument of investment and their significant valuation requires the recognition of these assets by the legal systems. This is because the economic popularity of cryptocurrency has brought about the need for regulation on how to safely handle the transactions on these assets and to protect the interests of those who make such transactions. In this context, the questions of which legal framework cryptocurrency will be subject to and how the right holders will be protected have been raised, and discussions on whether cryptocurrency are property or the applicability of the legal frameworks applicable to properties have also emerged.

What are “Digital Assets”?

The term “digital asset” is extremely broad. It captures a host of technologies, including digital files, email accounts, digital carbon credits, crypto-tokens, and non-fungible tokens (“NFTs”). In recent years, certain types of digital assets have become increasingly relevant to financial markets and are now used for an expanding variety of purposes, including payments, investments, and linking to, or embodying, debt and equity securities.

What is cryptocurrency?

Cryptocurrency is a digital or virtual currency that uses cryptography to secure and verify transactions and to control the creation of new units. Unlike traditional currencies, which are issued by central authorities such as governments or banks, cryptocurrencies are decentralized and operate independently of any central authority.

Cryptocurrencies have existed since 2009, when the Bitcoin blockchain was launched. Since then, the space has grown at an extraordinary rate. As of March 2023, around 23,000 cryptocurrencies exist, with many having different use cases and unique selling points.

The most well-known cryptocurrency is Bitcoin, but there are many others such as Ethereum, Litecoin, and Ripple. Cryptocurrencies use a distributed ledger technology called blockchain to record and validate transactions. The blockchain is a public ledger of all transactions in the network, which is updated and verified by a network of users called nodes.

One of the key features of cryptocurrencies is their decentralization, meaning that they are not controlled by any government or financial institution. Transactions can be made directly between individuals or entities without the need for intermediaries such as banks or payment processors, which can result in lower transaction fees.

Cryptocurrencies have been the subject of much debate and controversy due to their association with illegal activities such as money laundering and their potential use in facilitating tax evasion. However, they have also been seen as a way to promote financial freedom and financial inclusion, particularly in developing countries where traditional banking infrastructure may be lacking.

What is Bitcoin?

The best starting point for understanding this landscape is the most well know cryptocurrency: Bitcoin. At the time of writing, Bitcoin has a market cap of c. $541 billion – just under half of the entire market cap for all cryptocurrencies.

Definition of Property

Under Turkish law, property includes all tangible and intangible assets that can be subject to ownership.

Tangible property includes physical objects such as land, buildings, vehicles, and personal belongings. Intangible property, on the other hand, includes assets that have no physical form, such as intellectual property (patents, copyrights, trademarks), contractual rights, and other legal interests.

Ownership of property in Turkey entails several rights and obligations. The owner of a property has the right to use, enjoy, and dispose of that property, as long as it is in accordance with the laws and regulations. The owner can transfer the ownership of the property to another person by selling, gifting, or otherwise disposing of the property.

The right to use property includes the right to occupy, rent, or lease the property, subject to certain limitations and conditions. The owner of a property also has the right to enjoy the benefits that come with it, such as the income generated by renting or leasing it out.

The right to dispose of property includes the right to sell, mortgage, pledge, or lease the property. However, there are some limitations on the right to dispose of property, particularly with regards to property that is considered a cultural or historical asset, or property that is protected by environmental regulations.

Under Turkish Law, property rights are protected by law, and any infringement of those rights can be enforced through legal means. This includes the right to seek compensation for any damages suffered as a result of a violation of property rights.

Overall, the concept of property under Turkish Law encompasses a broad range of tangible and intangible assets that are subject to ownership, with ownership entailing various rights and obligations. The Turkish legal system provides strong protection for property rights, which are essential to the functioning of a market economy and the rule of law.

International Law

On May 18, 2023, the International Institute for the Unification of Private Law (UNIDROIT), the intergovernmental organization for modernizing and coordinating private law, published a set of draft Principles on Digital Assets and Private Law. The 19 Principles provide high-level guidelines with which States (including UNIDROIT Member States) would be encouraged to align their own legislation on digital assets.

European Union Law

On April 20, 2023, the agreed text of the proposed European Markets in Crypto-Assets Regulation was given final approval by the European Parliament. The Regulation is intended to improve legal certainty in the regulatory treatment of crypto-assets, to preserve consumer protection and market integrity in crypto-asset markets and to ensure financial stability. The text must now be formally endorsed by the Council of the European Union and will then be published in the Official Journal of the European Union. It will enter into force 20 days after publication. The majority of the Regulation is expected to apply from around January 2025, with the exception of the provisions regarding asset-referenced token issuers and e-money token issuers, which should apply from around July 2024.

Comparative Law

The legal status of cryptocurrency as property varies by jurisdiction. In some countries, such as the United States and the United Kingdom, courts have recognized cryptocurrency as a form of property. For example, in the UK, a court ruling in 2019 confirmed that cryptocurrency is property and therefore subject to property laws. In the US, courts have also recognized cryptocurrency as property, with some states even passing laws specifically addressing the treatment of cryptocurrency.

However, in other countries, such as China and Russia, the legal status of cryptocurrency is less clear, and there is ongoing debate about whether it should be considered property. In some cases, the legal status of cryptocurrency may depend on the specific circumstances of its use or ownership, such as whether it is held for investment purposes or used in transactions.

Overall, while the legal status of cryptocurrency as property is still evolving, many jurisdictions are increasingly recognizing its status as such, which can have implications for how it is taxed, inherited, and otherwise treated under the law.

Legal status of cryptocurrency under Turkish law

The legal status of cryptocurrency under Turkish law is not entirely clear. However, the Turkish government has taken some steps to regulate the use of cryptocurrencies.

In 2021, the Central Bank of the Republic of Turkey (CBRT) issued a regulation stating that “crypto assets cannot be used directly or indirectly for payments.” This regulation effectively banned the use of cryptocurrencies for payments in Turkey. However, it did not specify whether cryptocurrencies are considered property or not.

In 2020, a Turkish court ruled that Bitcoin was a property and that a victim of a fraud case involving Bitcoin was entitled to compensation. The court’s decision was based on the fact that Bitcoin was a valuable asset that could be bought, sold, and transferred. This ruling could be seen as an indication that cryptocurrencies are considered property under Turkish law.

If cryptoassets are treated as property by the Courts and can therefore be divided, transferred or sold within divorce and ancillary relief proceedings, just as with any other asset. Within the context of divorce proceedings, spouses must give full and frank financial disclosure of all their assets and liabilities, which includes cryptoassets.

Payment Ban

The Central Bank of the Republic of Turkey (CBRT) issued a regulation in April 2021 banning the use of cryptocurrencies and other digital assets as a form of payment. The regulation stated that cryptocurrencies cannot be used directly or indirectly in payments for goods and services. This means that businesses cannot accept cryptocurrencies as payment, and individuals cannot use cryptocurrencies to pay for goods and services.

Investment and Trading

The CBRT’s regulation does not prohibit individuals from owning or trading cryptocurrencies as a form of investment. Therefore, individuals can still buy, hold, and sell cryptocurrencies, but they cannot use them to make payments.

Registration and Compliance

Cryptocurrency exchanges that operate in Turkey are now required to register with the Financial Crimes Investigation Board (MASAK) and implement anti-money laundering and counter-terrorism financing measures. These measures include customer identification, transaction monitoring, and suspicious activity reporting. Cryptocurrency exchanges that fail to comply with these regulations could face fines and other penalties.

Central Bank Digital Currency (CBDC)

In addition to the payment ban, the CBRT has signalled its intention to create a central bank digital currency (CBDC). The CBDC would be issued and controlled by the central bank, and would serve as a digital representation of the Turkish lira. The CBRT is currently conducting research and development on the project.

Taxation

The Turkish government has not yet issued specific guidance on the taxation of cryptocurrencies. However, the general rule is that income from cryptocurrency transactions is subject to income tax, and capital gains from the sale of cryptocurrencies are subject to capital gains tax.

It’s important to note that the regulatory landscape for cryptocurrencies is constantly evolving and subject to change. Therefore, it’s important to stay up-to-date on any changes or updates to the regulations in Turkey.

Complex legal issues

The increasing use of cryptocurrencies and other digital assets has given rise to complex legal issues relating to regulatory status (including requirements to register as broker-dealers, commodity pool operators, commodity trading advisors, investment advisers, investment companies, securities exchanges and money service businesses), compliance (including valuation, custody and reporting), corporate law (such as maintain shareholder records), securities transactions (including initial coin offerings and M&A transactions), fund formation, the launch of ETFs and derivatives, venture capital, taxation, anti-money laundering, litigation and regulatory enforcement.

Bicak offers sophisticated and knowledgeable legal counsel to clients navigating this rapidly evolving space.  At the heart of Bicak’s cryptocurrency and blockchain practice is a deep understanding of the technologies that drive blockchain and related developments in distributive computing networks.