Turkey faces a crisis not unique in emerging economies: soaring inflation, plunging demand for its debt, and a bruising unemployment rate. Add to that a pliant central bank governor beholden to autocrat President Recep Tayyip Erdoğan who is not above installing his son-in-law as finance minister, and you get all the conditions for rampant cryptocurrency speculation.

That speculation came to an abrupt end two weeks ago when Turkey revealed plans to ban these software-based “digital tokens” as a form of payment on April 30 in an attempt to combat a flight from the tanking Turkish lira.

The move spooked investors. Days after the freshly installed head of the central bank made the announcement, Thodex, along with another exchange platform called Vebitcoin, collapsed. Thodex founder Fatih Faruk Özer escaped to Albania, and a number of his family members were detained by the authorities, according to state security officials.

An international manhunt is currently underway to locate the 27-year-old Özer and secure $2 billion in digital tokens he allegedly embezzled from 390,000 users of Thodex, the exchange platform he founded.

Although a social media account in Özer’s name denied claims he absconded with investor money, Turkish authorities reportedly issued a “Red Notice,” an international wanted person alert. When contacted by Fortune, Interpol declined to comment without the consent of the Turkish authorities. 

Distraught investors

In any case, the digital tokens are nowhere to be found, and throughout Turkey, investors are distraught. Estimates vary for how much they have lost.

Aykan Erdemir, senior director of the Foundation for Defense of Democracies’ Turkey Program, said the central bank ban incited fear that even holding cryptocurrencies, a hedge against double-digit inflation and lira devaluation, might be eventually declared illegal.

“This was basically a government attempt to try to control Turkey’s payment ecosystem. Ultimately Erdoğan has his eyes on Turkish citizens’ savings,” he said in a podcast.

“Cryptocurrency is Turkey’s final frontier. It’s almost like the last safe haven citizens believe is out of Erdoğan’s reach.”

The developments capped a turbulent start to the year for Turkey in which Erdoğan sacked his hawkish central bank governor, Naci Ağbal, in March just four months into the job for clamping down on runaway inflation, now pegged at 16%.

Many Turks sought to protect their savings by converting them into digital as well as physical assets like gold. Ağbal’s successor, the country’s fourth head of monetary policy in two years, paradoxically argued high rates are in fact responsible for rising prices rather than their solution.

But digital currencies have not proved to be the safe havens they sought.

“Any time someone invests in such highly speculative assets like cryptos, they must at all times be prepared to cope with the eventuality of a complete loss of their capital,” Oliver Geiseler, partner at financial services consultancy Capco, told Fortune.

Prior to the crackdown, estimates suggested between $1 billion and $2 billion in cryptocurrency was traded daily across the globe, and Turkey tied with Peru as fourth with about 16% of the total, according to a Statista survey recently cited by the World Economic Forum.

An increasing number of consumers hope to hedge against the loss of their purchasing power by diversifying into digital tokens. Advocates argue they offer protection in a world where institutions like the Federal Reserve penalize savers by maintaining interest rates at zero and expanding money supply, in part to ease the strains on stretched state treasuries.

Speculation

Prices for digital currencies like Ethereum and Dogecoin have surged recently amid growing social acceptance, with [hotlink]Tesla[/hotlink] even accepting Bitcoin since this year. Industry insiders warn, however, that the Turkish debacle proves they might not be for amateurs.  

Renato Fazzone, from FTI Consulting’s technology practice in Düsseldorf, warned the boom in Bitcoin interest driven by trends such as those seen in Turkey can backfire on investors at any time.

“Consumers enticed by the opportunity for quick gains should leave cryptocurrencies well alone unless they have studied the issue in depth, since these assets are extremely volatile and lack any real regulation,” the senior managing director told Fortune.  

“At the same time, platforms should consider the responsibility they bear on behalf of their customers, screening them in advance to gauge their level of sophistication and risk appetite in order to protect them from unwittingly making grave mistakes,” he added. 

The general manager of the Basel-based Bank of International Settlements (BIS), Agustín Carstens, blasted Bitcoin earlier this year, arguing it lacked any intrinsic value and consumed more electricity than all of Switzerland.

“If digital currencies are needed, central banks should be the ones to issue them,” he said in January. 

BIS, which represents the interests of the Fed, Bank of England, and more, warned this month the supervision of cryptocurrencies remained at a nascent stage, with many of the world’s leading economies still in the process of developing an approach to crypto assets.

Selfish motivations?

While the Turkish government, worried about the flight from the lira, might harbor selfish motivations for clamping down on currencies out of its direct control, there are many legitimate regulatory concerns over the twin risks of tokens used for money laundering and financing terrorism.

In October, the U.S. Financial Crimes Enforcement Network imposed a $60 million fine against Larry Dean Harmon, the founder of crypto service providers Helix and Coin Ninja, after the bureau discovered some of the 1.2 million in undocumented transactions involved narcotics traffickers, counterfeiters, and other criminals.

“There is a principle in banking circles that is particularly important in the context of digital tokens, which is ‘KYC’—know your customer,” Capco’s Geiseler said. “If it turns out cryptocurrency you received as part of a transaction was acquired illegally, then you can be considered complicit in a worst-case scenario.”

It’s not just Turks that are embracing the trend toward digital tokens. According to a survey by U.S. broker [hotlink]Charles Schwab[/hotlink], young British investors are twice as likely to buy an asset like Bitcoin as they are to buy stocks.

“Cryptocurrencies seem to be the flavor of the month,” said U.K. managing director Richard Flynn in a statement that suggested a note of disapproval. “A diversified portfolio, balanced across asset classes and sectors, is a more sensible, time-tested approach.”

The firm told analysts last week it would like to see “more regulatory clarity” before entering the market.

In Turkey’s case, the regulatory clarity came via a partial ban. For now at least, owning digital tokens is still legal even if paying with them is not.

This may only be cold comfort to the thousands of Turks who have put their money in cryptocurrencies. But investing in unregulated assets that exist uneasily alongside legal tender issued by government fiat is not for the faint of heart. 

This story was originally featured on Fortune.com

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