"For some time now investors have been looking at the unfolding currency crisis in Turkey as a local difficulty," noted CMC Markets UK analyst Michael Hewson.
"However, the accelerating speed of the declines appears to be raising concerns about European banks' exposure to the Turkish banking system."
The lira was buffeted by a diplomatic row between Ankara and Washington, with Turkish President Tayyip Erdogan's attempts to talk up the currency having exactly the opposite effect.
"The plunge in the lira which began in May now looks certain to push the Turkish economy into recession and it may well trigger a banking crisis," said Andrew Kenningham, chief global economist at Capital Economics.
European banking stocks plunged, the euro weakened while demand for safe haven assets like gold and the Swiss franc picked up as analysts realized the lira's plunge was not just a local Turkish problem.
But neither should global investors over-react, Kenningham said, noting that Turkey accounts for just one percent of the world economy, slightly less than the Netherlands, making it not much of a risk to the world economy, or even the eurozone.
Still, analysts said the lira's plunge of 16 percent against the dollar -- and at one point nearly 20 percent -- was dramatic, with analysts struggling to recall when they last saw anything like it.
"The last time I can remember a currency exploding into a similar acceleration of weakness to what we have seen in the past 24 hours is the Russian ruble crisis that transpired late in 2014," said Jameel Ahmad, head of currency strategy at FXTM.
And the fall may not be over.
The European single currency meanwhile tumbled to its lowest level in a year on concerns about eurozone exposure to the crisis in Turkey.