Seizure, Liquidation, And Collection Of Cryptocurrency

Introduction

Cryptocurrencies have become one of the most debated elements of the digitalized financial system and have secured their position on the agenda of Turkish law as well. Although the legal nature of cryptocurrencies remains controversial in academic writings, the main issue from the perspective of enforcement law is whether these assets can be considered part of the debtor's estate and, consequently, whether they may be subjected to seizure.

I.Definition of Cryptocurrency

A cryptocurrency is a digital asset designed to serve as a medium of exchange, created and transferred through various cryptographic methods. Cryptocurrency units constitute a form of digital, alternative, and virtual currency.

Unlike electronic or other monetary assets, cryptocurrencies are not tied to a central authority.

Their most significant characteristics—derived from the term cryptography—are their secure structure and decentralization. In other words, cryptocurrencies differ from traditional currencies in that their value and supply are not determined by a central authority.

Cryptocurrencies have rapidly proliferated on a global scale, particularly following the emergence of Bitcoin in 2009, and have become a significant economic asset for both individual and institutional investors. However, this new asset class has not yet been fully regulated by traditional legal systems.

II. Regulations Concerning the Legal Nature of Crypto Assets in Turkey

The first official definition of crypto assets under Turkish law was introduced by the "Regulation on the Disuse of Crypto Assets in Payments," published in the Official Gazette dated 16 April 2021 and numbered 31456. Pursuant to Article 3 of the Regulation, a crypto asset is defined as "intangible assets that are created virtually using distributed ledger technology or a similar technology and distributed through digital networks, but which are not considered fiat money, book money, electronic money, a payment instrument, securities, or other capital markets instruments."

Article 3, subparagraph (bb) of the Capital Markets Law further defines a crypto asset as "intangible assets that may represent value or rights, created and stored electronically using distributed ledger technology or a similar technology, and distributed through digital networks."

The definition set forth in the Regulation on the Disuse of Crypto Assets in Payments demonstrates that cryptocurrencies differ from existing legal categories; however, it does not negate their economic value or their convertibility into money.

Under this regulation:

• They may not be used in payments.
• They may not be used for providing payment services or issuing electronic money.
• Cryptocurrency exchanges may not intermediate the transfer of crypto asset funds to other institutions.

The Capital Markets Board (SPK) is another authority that has expressed its views on crypto assets. Although the SPK has issued warnings regarding the risks associated with cryptocurrency use, it has also stated that such assets may be considered securities or debt instruments under certain circumstances.

In recent years, the SPK has begun transitioning toward de facto regulation of crypto assets. With an amendment introduced to the Capital Markets Law in 2024 (Law No. 7518), the concept of a crypto asset was formally defined, and crypto asset platforms (service providers) were brought within the SPK's regulatory and supervisory authority (see CML Articles 35/B, 35/C, 99/A, 99/B). Under this new legal framework, the SPK has assumed the responsibility to authorize, monitor, and supervise crypto asset service providers.

From the perspective of Turkish enforcement law, the fundamental question remains whether cryptocurrencies can be deemed part of the debtor's assets and thus be subject to seizure.

III. Legal Definition of Cryptocurrencies

1. Limits of the Definition in the Regulation

The Regulation prohibits the use of crypto assets in payments and restricts payment service providers from intermediating transactions involving crypto assets. However, this regulation does not prevent crypto assets from being regarded as assets of economic value.

2. Debates in Legal Doctrine

Various views have been put forward regarding the legal nature of cryptocurrencies:

• The "currency" view argues that cryptocurrencies should be treated as money, given their economic functions.
• The "property" view maintains that cryptocurrencies cannot be considered "things" in the classical sense due to their intangible nature, yet they may be treated analogously to movable property.
• The "asset value" view suggests that, although cryptocurrencies do not fit squarely into any existing legal category, they should nonetheless be included within the debtor's estate due to their economic value.
• In its decision dated 19 April 2021 (Merits 2021/586, Decision 2021/675), the Istanbul 24th Enforcement Court assessed crypto assets within the scope of Article 89 of the Enforcement and Bankruptcy Law and held that "such types of money should be evaluated within the scope of commodities or securities, are considered a form of digital foreign exchange or virtual currency, and therefore may be subject to seizure." This ruling is particularly noteworthy.

3. Importance from the Perspective of Enforcement Law

Pursuant to Article 85 of the Enforcement and Bankruptcy Law ("EBL"), any asset of the debtor that can be converted into money, may also be seized. Therefore, the debates concerning the legal nature of cryptocurrencies are of secondary significance in enforcement law. The primary issue is whether these assets can be identified and secured in practice.

IV. The Concept of Seizure and Its Application to Cryptocurrencies

1. General Framework of Seizure

Seizure is the legal process by which the debtor's assets are taken under the control of the enforcement authority. In practice, this control is exercised through preservation measures. Although the Enforcement and Bankruptcy Law contains explicit provisions regarding the seizure of movables, immovables, and receivables, it includes no specific regulation concerning cryptocurrencies.

2. Assessment Based on the Storage Method of Cryptocurrencies

• Centralized platforms: Cryptocurrency exchanges allow users to store their assets by opening wallet accounts in their name (SPK Article 3, subparagraph (aa) and (çç)). These platforms may be considered third parties within the meaning of EBL Article 89. Accordingly, the debtor's assets held on such platforms may be legally seized through a notice of seizure.

• Hot wallets: These are software-based wallets controlled directly by the user. Since there is no third-party intermediary to serve as an addressee, Article 89 of the EBL cannot be applied. Additionally, the anonymity feature makes it difficult to link the wallet to the debtor.
• Cold wallets: These are hardware-based wallets and constitute physical devices. Therefore, they may be classified as "valuable items" under EBL Article 88 and may be physically taken into custody. However, examining the contents of such devices poses technical challenges.

3. Risk of Fraudulent Conveyance

The ease of transfer and anonymity associated with cryptocurrencies creates a risk that debtors may use them as a means of fraudulent conveyance. This poses a challenge to the effectiveness of enforcement mechanisms.

4. Legislative Framework and Existing Gaps

1. The Regulation and Recent Legislative Developments

The Regulation prohibits the use of crypto assets as a means of payment and prevents payment and electronic money institutions from conducting transactions with crypto asset service providers. However, the Regulation does not contain any explicit provision governing seizure procedures. In contrast, Article 99/B(7), introduced into the Capital Markets Law by Law No. 7518 in 2024, sets forth clear rules on the seizure and confiscation of crypto assets. Under this provision, all administrative and judicial requests concerning measures, seizure, or similar actions relating to customers' cash or crypto assets are to be executed exclusively by crypto asset service providers. Moreover, the inquiry and electronic seizure of such assets via information systems have been made possible under Article 78 of the Enforcement and Bankruptcy Law No. 2004 and the Law on the Collection Procedure of Public Receivables No. 6183. Crypto assets confiscated by judicial authorities are to be held in wallets maintained by custody service providers authorized by the Capital Markets Board.

Within this framework, in enforcement proceedings, the creditor may now directly request that an official writ be issued to the crypto asset service provider to determine the debtor's account information and to seize the debtor's assets. If the debtor possesses crypto assets, these may be converted into cash and used to satisfy or offset the creditor's claim. As these assets are considered securities in nature, their conversion to cash constitutes a sale transaction; therefore, specifying the date and time in the sale order is crucial. This is because crypto assets are highly volatile, and the sale must be executed at the designated date and time.

On the other hand, the only means of seizing crypto assets stored in personal electronic wallets (such as cold wallets) is through the debtor's declaration of assets. Such wallets are private systems that can be accessed solely by password; they are not subject to any centralized registration, and technical access is impossible unless they are proven to belong to the debtor.

2. MASAK Regulations

Crypto asset service providers have been included among the obliged entities under the Financial Crimes Investigation Board (MASAK) and are subject to the following obligations:

• 
  Customer identification,
  " Continuous monitoring of transactions,
  " Reporting of suspicious transactions,
  " Maintaining up-to-date information and documentation.

These obligations serve as significant tools that facilitate the identification and monitoring of a debtor's crypto assets held on centralized platforms.

3. Gaps and Uncertainties in Practice

Although Article 99/B(7) of the Capital Markets Law establishes a framework for seizure procedures carried out through centralized crypto asset service providers, there remains no clear or detailed regulation regarding the seizure of crypto assets stored in cold or hot wallets (i.e., wallets under the user's exclusive control). This regulatory gap leads to differing practices and legal uncertainties within enforcement offices, particularly when the debtor fails to file a declaration of assets or refuses to disclose the wallet keys.

V. Practical Challenges Encountered

• Proof of ownership: The anonymous nature of wallets makes it difficult to establish a connection between the debtor and the crypto assets.
• Technical access barriers: The encrypted structure of wallets complicates the practical execution of seizure measures.
• Risk of international transfer: The unrestricted transferability of crypto assets may render access impossible once the assets are moved abroad.
• Uncertainty within enforcement offices: Due to the absence of explicit legislation, different enforcement offices apply differing practices.

In conclusion, although debates regarding the legal nature of cryptocurrencies continue, such discussions hold limited relevance from the perspective of enforcement law. What truly matters is the convertibility and economic value of these assets.

• Crypto assets held on centralized platforms may be seized within the framework of SPK regulations and Article 89 of the EBL.
• Cold wallets may be classified as "valuable items" under EBL Article 88 and may be physically taken into custody.
• Although hot wallets present both technical and legal difficulties, it cannot be concluded that cryptocurrencies held in such wallets are inherently immune from seizure.

In this context, we are of the opinion that cryptocurrencies are, in principle, seizable under Turkish enforcement law, and that the method applied to the seizure of funds in bank accounts may similarly be applied to cryptocurrencies. However, it is evident that effective implementation requires specific legislative regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.