Weaponizing Sovereignty Against Crypto: Türkiye’s Post-COVID Defense of the Lira in an Age of Decentralized Finance

Emerging market governments increasingly prioritize the defense of monetary sovereignty over the liberalization of financial innovation, particularly under conditions of macroeconomic fragility, high inflation, and geopolitical uncertainty. This study analyzes Türkiye’s post‑COVID financial landscape as a critical case through which to examine state strategies aimed at resisting the systemic adoption of cryptocurrencies. Despite escalating grassroots demand for digital assets—driven by Lira depreciation, inflationary pressures, and declining institutional trust—the Turkish government has leveraged a combination of regulatory, monetary, and legal instruments to preserve the Lira’s role as the exclusive legal tender. Utilizing theories of monetary sovereignty and financial statecraft, alongside recent literature on crypto regulation in emerging markets and empirical insights from IMF and BIS analyses on FX interventions, this paper formulates a structured set of research questions and hypotheses to interrogate the relationship between cryptocurrency adoption, FX volatility, and institutional resistance. Methodologically, the study employs ordinary least squares (OLS) regressions with Newey-West corrections, lagged models, and event studies centered on Türkiye’s key regulatory milestones (2021–2024) to capture causal dynamics and policy feedback loops. Findings demonstrate a robust correlation between increased BTC/TRY volumes and TRY/USD volatility, underscoring the self-reinforcing nature of speculative feedback loops in fragile monetary environments. The evidence shows that heightened crypto adoption amplifies FX volatility through TRY Volatility Feedback Effects (TFF), particularly during geopolitical crises such as the June 2025 Middle East conflict, where BTC’s decline and USD’s appreciation reaffirmed the persistence of traditional safe-haven behaviors.