Why is emerging Southeast Asia compatible with crypto?

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but what is driving adoption and will it last?getty

The cryptocurrency may originate from the G7 if we assume Satoshi Nakamoto is Japanese, but in practice developing countries have often been the most enthusiastic about adopting decentralized virtual currencies. The reason is simple: the promise of financial democratization of Cryptos has strong appeal in countries where large segments of the population do not have access to certain banking services.

It is no coincidence that Asia’s two largest developing countries, China and India, have cracked down on crypto harshly while emerging Southeast Asia has not. About 80% of people in these two countries have bank accounts.

By contrast, up to 70% of Vietnamese are unbanked, as are about 66% of Indonesians and 44% of Filipinos. Regulators in these countries are, unsurprisingly, slower than their counterparts in China and India in restricting access to cryptocurrency.

Granted, they recognize that crypto is not a panacea against financial exclusion, but they also do not view it as a threat to the integrity of their respective central banks and, in the case of the Philippines, even allow its use for payments. . So crypto could ultimately help boost financial inclusion in some of Southeast Asia’s most important emerging economies.

Approach to Vietnam

Vietnam has been slow to adopt crypto regulations, despite allowing its citizens to hold virtual assets. It does not recognize cryptocurrencies as legal tender.

In this legal gray area, crypto has found a space to thrive. A March 2023 report from Chainalysis reveals that nearly 17% of Vietnam’s 97 million people own cryptocurrency, with bitcoin being the most popular digital asset. It would seem that the collapse of FTX and the ongoing bear market has not undermined Vietnamese confidence in decentralized digital currencies.

One of the likely reasons for the popularity of cryptos in Vietnam is that they have important practical uses. For example, the 600,000 Vietnamese working overseas in more than 40 countries annually remit around US$3-3.5 billion every year, according to Vietnamese government data. While traditional funds transfer methods incur high transaction fees, using crypto can be significantly cheaper.

With this in mind, Strike, a digital payment platform based on Bitcoins Lightning Network, announced in late March the launch of money transfers from the United States to Vietnam in partnership with crypto exchange Getbit. In a press release, Strike said it would enable lightning-fast transfers from US dollars received in local currency to a recipient’s bank account in Vietnam. Vietnam is among the ten largest remittance markets in the United States. In 2021, the country received over $18 billion in remittances.

We are excited to play a part in building a more inclusive experience and shaping the future of payments, Abhay Agarwal, Founder and CEO of Getbit, said in the press release.

Crypto in Indonesia

For its part, Indonesia has generally supported crypto as an investment class, but not for payments. Bank Indonesia banned payment processors from using cryptocurrency to settle transactions in 2016 and in late 2017 banned financial institutions from using crypto for payments. During the last crypto bull market in 2021, the Indonesian central bank even mobilized official supervisors to enforce the ban on financial institutions from using crypto assets as payment.

That said, Indonesia plans to set up a cryptocurrency exchange this year ahead of a transfer of regulatory powers over digital assets to the Commodity Futures Trading Regulatory Agency’s Financial Services Authority, known as Bappebti. Indonesian regulators believe that virtual assets should be regulated on an equal footing with other financial and investment instruments. According to The Paypers, at the start of 2023, there were 383 crypto assets and 10 local coins that could be traded in Indonesia, while an additional 151 assets and 10 coins were under review by Bappebti.

In the latest crypto bull market, Indonesian investors have been very active. The trading volume of crypto assets in the country grew by more than 1,000% in 2021 to reach 859.4 trillion rupees ($57.37 billion), according to Bappebti data.

A widely cited survey published by Gemini in April 2022, the “Global State of Crypto Report”, found that 41% of Indonesians between the ages of 18 and 75 with an income of more than $14,000 per year own crypto assets. The country shares first places with Brazil among the 20 countries studied by Gemini.

Digital assets in the Philippines

The Philippines is the most pro-crypto country in Southeast Asia, buoyed by regulatory tolerance tied to central banks’ digitalization and financial inclusion goals. Bangko Sentral ng Pilipinas (BSP) aims for 50% of retail payments to be digital by the end of 2024, along with the financial inclusion of 70% of adults. Crypto can likely help support these goals. For example, UnionBank has also launched a payments-focused stablecoin pegged to the Philippine peso for financial inclusion purposes. It attempts to link the country’s major banks with rural banks and bring financial access to previously unbanked parts of the country.

Estimates of crypto ownership in the country vary widely. For example, a recent study by CoinJournal, the Philippines ranked globally in number of virtual asset traders at around 7 million or 6% of the population of 113 million. However, according to Finders Cryptocurrency Adoption Index, the crypto ownership rate in the Philippines is 15%, with nearly 11 million Filipinos owning digital assets.

Meanwhile, like Vietnam, the Philippines has a huge remittance market. Data released by the central bank showed that personal remittances rose 3.6% to a record high of $36.1 billion in 2022, from the previous high of $34.9 billion in 2021 Personal remittances represent the sum of net compensation of employees, personal transfers and capital transfers between households. for 8.9% of the Philippines’ GDP.

With this opportunity in mind, digital payment company Strike expanded into the Philippines in January.

It’s in the hands of regulators

Given the potential benefits of digital assets for financial inclusion, we expect regulators in emerging Southeast Asia to gradually take steps to legalize their use. The gray area in which crypto has operated in these countries so far will eventually become blacker and whiter.

Vietnam has considered crypto regulation over the years, but to date has been slow to enact rules. This should change given the negative effects on investors of the FTX collapse. In the aftermath of the exchanges implosion, Prime Minister Pham Minh Chinh reportedly said the government should study crypto regulation, which followed an earlier request by Deputy Prime Minister of General Economy Le Minh Khai asking the country’s finance ministry to develop a regulatory framework for digital. assets.

Indonesia can be expected to continue with its planned national crypto exchange, while the Philippines is likely to be the most crypto-friendly of the three countries, even allowing for a wide variety of crypto payments.

Given MiCA’s recent move to Europe, stablecoins might have a way forward as a viable Web3 payment method that avoids the problems of pegless cryptocurrencies. If that turns out to be the case, Vietnam and Indonesia could eventually roll back their crypto payment bans, which are tied to a regulatory concern about the inherent instability of digital assets like bitcoin, and allow an ecosystem to wider virtual currency to take hold in both countries. .

Follow me on Twitter or LinkedIn. Check out my website.

I am the founder and director of Kapronasia, one of Asia’s leading providers of advisory services focused on the fintech industry. I have been involved in fintech for over 20 years and cover all fintech and blockchain topics. Before Kapronasia I was Global Banking Industry Manager for Intel based in Shanghai, China and before Intel I was CIO for Citigroup Portugal. I have testified before the US Congress on fintech issues in China and am the author of Chomping at the Bitcoin: The History and Future of Bitcoin in China published by Penguin. I have a BS in Computer Science from Syracuse University and an MBA from INSEAD.

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