Luno may be both boon and bane for crypto lovers
Regulation is good for users’ protection and it should not be used as a proxy to cover the excessive speculative risk surrounding some of the highly volatile cryptocurrencies.
has become the first cryptocurrency exchange in Malaysia to receive the Securities Commission (SC) full approval to operate as a recognised market operator, or Digital Asset Exchange (DAX).
This is a major breakthrough for crypto market in Malaysia, which comes after the conditional approval of three licences given by the SC to Sinegy Technologies (M) Sdn Bhd, Tokenize Technology (M) Sdn Bhd, alongside Luno in June.
This might be a welcome move for the crypto fans in Malaysia as they can now trade cryptocurrencies via a regulated DAX, but how well does it space out for the digital currency investment in the country?
Regulated crypto exchange is vital to avoid financial fraud involving crypto assets and investors as better regulation will spur the adoption of digital assets and curb the use of cryptocurrencies for dark net usage such as ransom payment, terrorism financing and money laundering.
By establishing a regulated crypto exchange, Malaysia has joined the ranks of developed countries that are continuously working on establishing conducive environment to promote usage and adoption of digital assets.
The G20 countries have signed a joint declaration in December last year, where it promised to regulate cryptocurrencies and combat their use for money laundering and the financing of terrorism, in line with the Financial Action Task Force standards.
Meanwhile, South Korea’s Financial Services Commission affirmed last year that crypto exchanges would not face any issues with banking provisions, so far crypto exchanges have adequate anti-money-laundering safeguards and robust knowyour-customer checks in place.
Japan, which became the first country to regulate cryptocurrency exchanges at a national level in 2017, recently revised its laws to provide more clarity and tighter controls over cryptocurrency by replacing the term “virtual currency” by “cryptographic assets” by amending the Payment Services Act and Financial Instruments and Exchange Act.
Malaysia has established itself as a key exporter of regulatory thinking within East Asia and Pacific in the area of alternative finance, including cryptocurrency, only second to Singapore as noted by a recent global report published by the Cambridge Centre for Alternative Finance and supported by the World Bank Knowledge and Research Hub in Malaysia.
The acceptance of Malaysia as a leader in the region for regulatory reforms in financial technology (fintech), including cryptocurrency does not come as a surprise, since the alternative finance market in Malaysia has been experiencing strong growth at an average of 127 per cent per annum between 2013 and 2017.
Even though Malaysia is proactive setting up the landscape of digital currency regulation, the domestic crypto adoption is still relatively low in the region as noted in the Finance Ministry’s Economic Outlook 2020 report. One plausible reason for such a low adoption could be excessive speculation resulting in huge volatility in crypto prices.
In the last week of last month, Bitcoin volatility hit sevenmonth low as price fell back to US$8,000 (RM33,040) after reaching a high of US$13,880 in June.
Another reason for low adoption of cryptos in Malaysia is the lack of understanding of cryptocurrencies and their practical application among the general masses. The public might have heard about cryptocurrencies or more generic about fintech, but they lack the basic working of blockchain (technology behind cryptocurrency) and the applicability in the real world.
Having a high rate of cybersecurity breaches related to cryptocurrencies or crypto exchanges also spurred users to stay away from the cryptos.
The regulatory boost such as regulated DAX will remove some of the uncertainties and naivety around the crypto usage in Malaysia and will help it to become mainstream.
Regulation is good for users’ protection and it should not be used as a proxy to cover the excessive speculative risk surrounding some of the highly volatile cryptocurrencies.
A more coordinated effort in terms of financial and technical education is needed to boost the adoption and usage of new innovative financial assets.
Cryptocurrencies should not be solely used as an alternative for speculative investment and the users should not be only influenced by the huge volatility in the prices rather than having a better understanding of the technology behind it and its purposefulness in the real world.
It might be too early to assess the impact of regulated DAX in place, with a better and strong regulation, cryptocurrency adoption will increase for more organised financial services rather than for speculative and dark net activities.