Crypto is booming in Southeast Asia, but what are the reasons for this phenomenon, and how long will it continue?
One factor is that developing countries are more likely to adopt decentralized digital currencies. This is because crypto offers a vision of financial empowerment for people who do not have access to certain banking services.
This explains why Asia's two biggest developing countries, China and India, have cracked down on crypto while emerging Southeast Asia has yet to. About 80% of the people in both countries have bank accounts. On the other hand, up to 70% of Vietnamese are unbanked, as are around 66% of Indonesians and 44% of Filipinos.
Regulators in these countries are, understandably, less eager than their counterparts in China and India to restrict access to cryptocurrency.
They realize that crypto is not a magic bullet for financial inclusion. Still, they also do not view it as a threat to the authority of their respective central banks, and in the case of the Philippines, they are even allowing its use for payments. Crypto could help increase financial inclusion in Southeast Asia's most important emerging economies.
Indonesia has generally supported crypto as an investment class, but not a payment method. Bank Indonesia banned payment processors from using cryptocurrency to settle transactions in 2016 and, in late 2017, prohibited financial institutions from using crypto for payments. During the last crypto bull market in 2021, the Indonesian central bank even deployed official supervisors to enforce the ban on financial institutions using crypto assets as payment.
However, Indonesia plans to establish a cryptocurrency exchange this year ahead of a shift of regulatory powers over digital assets to the Financial Services Authority from the Commodity Futures Trading Regulatory Agency, known as Bappebti. Indonesian regulators believe virtual assets should be regulated equally with other financial and investment instruments.
According to The Paypers, as of early 2023, there were 383 crypto assets and 10 local coins that can be traded in Indonesia, while an additional 151 assets and 10 coins are under review by Bappebti.
In the most recent crypto bull market, Indonesian investors were very active. The transaction volume of crypto assets in the country soared more than 1,000% in 2021 to 859.4 trillion rupiah ($57.37 billion), according to Bappebti's data.
The Philippines is the most crypto-friendly country in Southeast Asia, driven by regulatory tolerance linked to the central bank's digitization and financial inclusion goals. Bangko Sentral ng Pilipinas (BSP) aims for 50% of retail payments to be digital by the end of 2024 and for 70% of adults to be financially included, which can be attained with crypto.
Union Bank has also launched a payments-focused stablecoin pegged to the Philippine peso for financial inclusion. It tries to connect the country's central banks to rural banks and bring financial access to previously unbanked parts of the country.
Estimates of crypto ownership in the country vary widely, but the crypto ownership rate in the Philippines is 15%, with almost 11 million Filipinos owning digital assets.
The Philippines also has a vast remittance market like Vietnam. Data released by the central bank showed personal remittances increased by 3.6% to a record high of US$36.1 billion in 2022 from the previous high of $34.9 billion in 2021. Personal remittances – the sum of net compensation of employees, private transfers and capital transfers between households – accounted for 8.9% of the Philippines' GDP.
Regulators in emerging Southeast Asia will probably move towards legalizing digital assets over time, considering their possible benefits for financial inclusion. The ambiguity of crypto's situation in these countries will be settled and defined sooner or later.
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