Digital currency – a subject of great divide
Bank Negara monitoring and assessing risks posed to financial system
DIGITAL currencies have gained so much prominence this year that even Prime Minister Datuk Seri Najib Tun Razak is calling this recent development a major breakthrough in mathematics and cryptography.
While the prime minister in his speech to a group of entrepreneurs recently was referring to the spirit of innovation that created bitcoin, there is little doubt that digital currencies are making their great leap into the mainstream.
Earlier this week, Cboe Global Markets, Inc launched the world’s first bitcoin futures contract. Similar contracts will be offered later this month at another exchange operated by CME Group Inc.
These derivatives capped off what has been a massive year for bitcoin.
The world’s biggest and bestknown cryptocurrency started the year at US$1,000 and is currently trading at around US$16,000.
Bitcoin, which was created in 2009, was the first decentralised cryptocurrency. A single bitcoin was then worth a quarter of a US cent.
The explosive surge in the bitcoin price of more than multiple folds this year has seen the ordinary man on the street ranging from housewives to street vendors and office workers rushing to mobile-app virtual currency exchanges in the hopes of quick profits, despite several warnings by central bankers around the world.
Such stratospheric gains and its anti-establishment mission as an open currency not tied to any government or central bank has captured the market’s attention and made it a subject of great divide.
Like many central banks around the world, Bank Negara sees the recent explosion of interest in bitcoin and its digital siblings as a bubble.
Bank Negara says it will continue to monitor and assess the risks posed to the financial system by such activities to ensure that the integrity of the financial system is not compromised.
It also says that users of digital currencies are doing it at their own risk.
There are four digital currency exchanges providing services in Malaysia with a combined monthly transaction volume of RM75mil. This is relatively a drop in the ocean, but definitely growing as interest in bitcoin soars.
For instance, Seoul-based Bitthumb in April saw a monthly transaction of US$593.27mil on its platform. In July, it quickly rose to US$54.52bil. In August, the daily trading volume on Bitthumb was at a whopping US$2.4bil.
For Bank Negara, one of the main issues is monitoring activities surrounding the trading of cryptocurrencies, of which it may include steps such as exchanges properly identifying their clients by real names.
To keep tabs on what is going on in this market, Bank Negara has come up with an exposure draft requiring all exchanges to report their activities under the AntiMoney Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.
This falls under similar reporting requirements it imposes on audit firms and real estate agencies.
This doesn’t mean that Bank Negara is trying to regulate the industry, nor is it recognising bitcoin or any other digital currency as a legal method of payment in Malaysia.
“We need to strike a balance between public interest and the integrity of the financial system. A ban would just curb innovation and creativity,” said Bank Negara deputy governor Abdul Rasheed Ghaffour at a media briefing yesterday.
He said the central bank is organising a meeting with cryptocurrency exchanges next week.
He pointed out that there are four active digital currency exchanges offering services in Malaysia – Luno, CoinHako, XBit Asia and PinkExchange.
Investors can buy bitcoin and other cryptocurrencies through exchanges spread across the globe, including those in Malaysia.
The total market capitalisation of cryptocurrencies now stands at around US$500bil, with bitcoin making up half of it, according to coinmarketcap.com.
In comparison, the market capitalisation of Malayan Banking Bhd alone is RM103bil, while Apple Inc’s market value is more than triple bitcoin’s at US$884bil.
Abdul Rasheed stressed that digital currencies are not legal tender in Malaysia, and said that the central bank is not stopping the trad- ing of bitcoin.
“The public should be aware that its usage has no backing from the public financial institutions,” he said.
On initial coin offerings or ICOs, which have already been banned in China, Abdul Rasheed said they fell under the authority of the Securities Commission.
“But we are always working closely with relevant authorities on the matter, especially if it involves conversion between digital currency and fiat money,” said Abdul Rasheed.