New Straits Times

Luno may be both boon and bane for crypto lovers

- The writer is professor of finance and head of school (accounting and finance) at Asia Pacific University Malaysia and a research affiliate of Cambridge Centre for Alternativ­e Finance at Judge Business School, University of Cambridge.

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.

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