The Analysis of Crypto Asset Definition in the Draft Crypto-Assets Law in Turkiye

The first information about the draft law (“Draft”) regarding crypto assets in Turkiye, which is publicly referred to as the Draft Crypto Asset Law, was shared by the Minister of Treasury and Finance, Mehmet Şimşek.

The most important issue expected with the new law is how crypto assets will be defined, because we can think of this definition as the root of a tree, as we always say. Just as the trunk, branches and leaves of a tree are shaped according to its root, many concepts and systems about crypto assets, such as trading, custody, categorization, reporting and taxation according to their inherent characteristics of crypto assets, etc., will be shaped within the scope of this definition.

Mehmet Şimşek states that crypto assets are defined in the Draft as “intangible assets that can be created and stored electronically using distributed ledger technology or a similar technology, distributed over digital networks, and capable of meaning value or rights.”

We can break down this definition from a few points of view. 

1. As a basis for the definition, the definition of “crypto asset” in the Regulation on the Non-Use of Crypto Assets in Payments (“Regulation”) published by the Central Bank of the Republic of Turkiye (“CBRT”), and entered into force on 30 April 2021, was taken and some elements were changed.

2.The different elements are as follows:

2.a. We see that the expression “created virtually” in the Regulation has been replaced with the expression “can be made/created and stored electronically”.

The “custody” feature (by the reference of “stored”), which is not included in the definition in the Regulation, has been included in the definition in parallel with the importance of the current custody discussions and the custody authority to be given to banks.

2.b. The expression “capable of meaning value or right” in the Draft was not included in the definition by the Regulation. Instead, the Regulation included the phrase “(intangible assets…) that are not qualified as fiat money, registered money, electronic money, payment instrument, securities or other capital market instruments”.

2.b.1 When we evaluate these two elements together, we can say that the purpose of the law is to enable crypto assets to be regulated under the umbrella of an ” intangible asset”, with different sub-definitions and secondary regulations by different regulatory bodies according to future needs.

For example, we know that the competent authority for crypto asset issuance and licensing of crypto asset service providers will be the Capital Markets Board (“CMB”).

However, the regulation of CBDCs and stable coins may fall on the side of the CBRT, in line with the regulations in the world, and a preference in this direction may develop.

Although it is stated that the CMB will be authorized regarding custody activities and custody licences to be given to banks, the Banking Regulation and Supervision Agency (“BRSA”) may also come into play in some future needs.

In this case, each institution can designate a crypto asset as a capital market instrument (by CMB) or payment instrument (by CBRT) within the scope of the details to be determined by secondary regulations, and the relevant licenses can be issued accordingly. The crypto asset definition lends itself to this flexibility. If the law text is designed to complement this, we think it would be advantageous to establish a flexible structure that will suit future needs.

2.b.2 The expression “capable of meaning value or rights” is used in the Markets in Crypto-Assets Regulation (MiCA), which will be implemented in the European Union member states and will come into force in 2024. The equivalent expression of  “a digital representation of a value or of a right” is in the definition of “crypto asset” in MiCA .

This statement is positive both in terms of compliance with MiCA and therefore with the practice in the wider European Union geography, and in terms of its compliance with working of crypto assets.

The purpose of MiCA was to provide a definition that would cover the different types of crypto assets that exist today and may emerge in the future. Taking a stablecoin or Bitcoin or Ether as an example, they carry “value” as a means of payment or store of value, while a utility token or governance token provides its owners with “rights” determined by the issuer. The definition is positive in this context, too, as coins or tokens, regardless of their design, provide benefits to their owners in the form of (value), (right) or (value + right) combinations.

2.c. Another important topic, perhaps the most important:

“Intangible asset” in the Regulation is preserved in the same way in the definition given by Mehmet Şimşek.

Intangible asset, in our opinion, is contrary to crypto assets, their use and current trends in crypto asset regulations from a global perspective. That’s why it needs to be changed.

When we look at the definition of crypto assets as a “type of asset”, we see that there is a break from traditional asset classes and a new type of asset is created in the form of “virtual asset”. Therefore, crypto assets are included in the relevant laws and regulations either as a type under the umbrella of “virtual assets” or directly specified as “crypto assets” although they are accepted as such.

Let’s first proceed with examples from around the world, then put on the lawyer’s “word worker” hat and look at that side.

In the regulations of the Financial Action Task Force, as well as in the legal regulations of the financial hubs Dubai, Singapore, Hong Kong and Malta, the definitions of Virtual Asset and in some cases Digital Asset are commonly used for crypto assets.

Leading Anglo -American countries, such as the United States (“USA”), Canada and England, draft regulations or legislative proposals have been made with the expressions “digital asset” and “crypto asset” and these are expected to be signed into law in the 2024-25 period.

Since MiCA is specific to crypto asset markets, it contains a direct definition, among others, as a “crypto asset”.

On the other hand, a crucial example came in when the Financial Accounting Standards Board (“FASB”) in the USA published a new reporting standard for crypto assets in December 2023. While crypto assets were previously included in company balance sheets as “intangible assets” in the USA, with the new standard, FASB switched to a model of reflecting crypto assets that meet certain criteria to the balance sheets based on their current values in the market. This demonstrates that there is an advantageous move from the “intangible assets” to the “virtual/digital assets” perspective when it comes down to crypto assets.

Having laid out sufficient examples, let’s come to the wordcrafting and see if there are elements there that support our views.

Looking up the dictionary meanings in the Turkish Language Association:

Virtual: adjective, “Created/made in a public network by using computer, tablet, mobile phone, etc. Digital”

(The definition of Virtual in the Oxford Dictionary in the same direction: “made to appear to exist by the use of computer software”).

Digital: Virtual, numeric

Intangible: non-tangible

These definitions prove that virtual and digital are used interchangeably. This is compatible with the crypto asset laws and regulations as we have given examples from around the world above.

Additionally, we see that “intangible” remains more general than “virtual/digital”, and when we consider crypto assets, “virtual/digital” is more suitable.

If we combine it with the example of new FASB standards in the USA, it may be concluded that “intangible assets” corresponds to different asset types in accounting-reporting fields and that defining crypto assets as “virtual/digital” is necessary to open a new space for bringing standards for a new asset type. In light of the above, in our opinion, it is necessary and important to define crypto assets as “virtual assets” and to develop all rules and systems in accordance with the root-definition as a new type of asset.