Turkey: "Initial Coin Offering" In Consideration Of Capital Markets Board And Banking Regulation And Supervision Agency's Views

Last Updated: 9 October 2018
Article by Hatice Zümbül and Alper Örnek

Initial Coin Offering ("ICO"), which has emerged as a result of crypto currency market's advancement and popularity, is accepted as a new concept that shall be regulated by authorities.

Although the concept was approached cautiously at first, ICO transactions has taken part in the New Economy Program issued by the Republic of Turkey Ministry of Treasury and Finance owing to its volume and facilitated proceedings. ICO has given the high sign that it will take a bigger part in the market in forthcoming days.

1. Digital Assets and Token1

Digital assets contain all the contents which is generated or stored in digital forms such as images, photographs, videos or text files etc. In this regard, digital assets could be explained as all personal and intangible assets existing in online medium. These assets may be stored in personal electronic devices or cloud storage systems. Also, it should be mentioned that digital assets could easily be turned into a tangible assets via using electronic devices.

Besides, Token may be defined as a digital asset that is generally produced in the scope of a specific service and used for functioning of the service. It is possible to transfer the ownership of Token and moreover, it could be used in order to access the service which is provided by it.

2. Initial Coin Offering ("ICO")

An Initial Coin Offering ("ICO"), is a fundraising mechanism in which new projects sell their underlying crypto tokens in exchange for bitcoin and ether. Thus, it is considered as parallel to initial public offering2 that is mostly conducted by the corporations.

While initial public offerings are preferred by a corporation on the purpose of financing, liquidity, institutionalization, credibility, globalization; ICO is used in order to gain funding for the blockchain-based projects.

For an entrepreneur, ICO would be the best way to issue a new crypto currency into the blockchain market. Interested investors would buy in to the offering, either with fiat currency or with pre-existing digital tokens like bitcoin or ether.

Before commencing an ICO, a whitepaper is prepared by the entrepreneurs who intend to start the ICO project and submitted for subscribers' information to state what the project is about, what need(s) the project will fulfil upon completion, how much money is needed to undertake the venture, how much of the virtual tokens the pioneers of the project will keep for themselves, what type of money is accepted, and how long the ICO campaign will run for.

Tokens are provided to subscribers in exchange for their investment in an ICO project and they could be imagined as the equity shares that are gained by the entrepreneurs who participates in the process of an initial public offering. Subscribers would gain the promised Tokens in the scope of the project if project succeeds, otherwise they would return invested crypto currency in the project if the project ends in a failure.

The most important difference between the ICO projects and initial public offerings is subscribers' motive. It could be said that ICO projects are closer to the "crowdfunding" activity which is practised via internet and subscribers are named as "supporters" in general. Moreover, supporters' will to make profit through the ICO project is the biggest factor which distinct ICO's from crowdfunding. For instance, Ethereum's ICO in 2014 was an early pioneer, raising $18 million over a period of 42 days. Ethereum has proven to be crucial for the ICO space in general. When it debuted, ether was priced at around $0.30; as of July 24th, 2018, it trades at $474.62, marking gains of close to 1,600x.

3. Capital Market Board and Banking Regulation and Supervision Agency's Approach to ICO

a. September, 27 2018 dated Capital Markets Board Journal3

The risks related to an ICO Project are emphasized in the Journal and it is mentioned that transactions regarding ICO shall be regulated immediately. In this context, subscribers' attention was attracted on below mentioned risks:

  • The majority of the ICOs are not regulated by regulatory authorities due to its nature.
  • Generally, digital assets are sold by uncertain commitments and collected sum may not be spent according to provided commitments.
  • The value of the Tokens may fluctuate excessively as the value of the crypto currency market.
  • Provided documents may contain misstatements.
  • Since projects lack maturity, it is possible that subscribers' may lose all of their investments and their investments may be used for illegal purposes.

b. Banking Regulation and Supervision Agency's4 Public Statement Dated 25 November 2013

Public statement of Banking Regulation and Supervision Agency was made to raise awareness in terms of Bitcoin. The figures that;

"Bitcoin, known as digital currency, is not issued by a private institution or a government agency and therefore not guaranteed for the return. It is not considered as a electronic currency and is not supervised in the scope of the Banking Law.

Since the parties' identifications are unknown, transactions performed by digital currencies such as Bitcoin may lead to certain illegal consequences.

Fluctuations in values of crypto currencies, the risk of loosing digital wallet and correspondingly credentials of the owner, demonstrates the risks of crypto currency market."

4. New Economy Program5 and ICO

New Economy Program which will be performed in 2019, 2020 and 2021 was announced on 20 December 2018 in a press meeting by Minister of Treasury and Finance Berat Albayrak.

In scope of the program, which has 3 main topics namely as "rebalancing, discipline and change", ICO was namely stated as a modernist transaction. According to the program, crowdfunding and ICO transactions are planned as an alternative for IPO methods and they would be generalized so as to fund innovative projects.

5. Conclusion

Crypto currency market which is hard to supervised by an authority is no longer an issue that only individuals are paying attention but also States as well since the transaction volume related to ICOs have been started to express with millions of dollars. In this context, governments commenced to regulate the blockchain system and crypto currency market as a consequence.

It is understood that also in Turkey, legislative actions for regulating the crypto currency market have been started and this may clearly be seen from the aforementioned bulletin issued by Capital Markets Board.

However, it is still a unpredictable that in which way this regulation will be drafted, which areas would be taken into supervision or will there be a central authority supervising ICO transactions. We will keep the tabs on for more information.


1. www.medium.com

2. Inital public offering is that sale of equity shares by the way of convoking stock market investors or making announcemet to them by publication in order to capitalize to the corporations.

3. http://www.spk.gov.tr/Bulten/Goster?year=2018&no=42

4. http://www.bddk.org.tr/ContentBddk/dokuman/duyuru_0512_01.pdf

5. https://www.hazine.gov.tr/hazine-ve-maliye-bakani-duyuru-listesi

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