Turkey's central bank has banned the use of cryptocurrencies and crypto assets to purchase goods and services.

It cited possible "irreparable" damage and significant transaction risks in a move that cooled global bitcoin prices.

In legislation published today, the central bank said cryptocurrencies and other such digital assets based on distributed ledger technology could not be used, directly or indirectly, as an instrument of payment.

Turkey's growing crypto market has gained momentum in recent months as investors joined a global rally in bitcoin, seeking to hedge against lira depreciation and inflation, which topped 16% last month.

Bitcoin was off nearly 3% at $61,490 against the dollar after the Turkish ban, which was criticised by the main opposition party.

In a statement, the central bank said crypto assets were "neither subject to any regulation and supervision mechanisms nor a central regulatory authority," among other security risks.

"Payment service providers will not be able to develop business models in a way that crypto assets are used directly or indirectly in the provision of payment services and electronic money issuance," and will not provide any services, it said.

"Their use in payments may cause non-recoverable losses for the parties to the transactions ... and include elements that may undermine the confidence in methods and instruments used currently in payments," the central bank added.

This week Royal Motors, which distributes Rolls-Royce and Lotus cars in Turkey, became the first in the country to say it would accept payments in cryptocurrencies.

Globally, giants such as Apple, Amazon and Expedia also accept such payments.

Crypto trading volumes in Turkey hit 218 billion lira ($27 billion) from early February to 24 March, up from just over 7 billion lira in the same period a year earlier, according to data from US researcher Chainalysis analysed by Reuters.

Cryptocurrency worth 23 billion lira was traded in the first few days after Erdogan shocked markets by ousting the central bank chief last month, the data showed, versus 1 billion lira in the whole of March 2020.

Last week, Turkish authorities demanded user information from crypto trading platforms.

The legislation goes into effect on April 30.