KUALA LUMPUR: Broadening the recognition of cryptocurrency beyond its current classification as a security could position Malaysia as a prominent hub for financial innovation, attracting fintech startups, blockchain developers, and global investors, according to global digital asset exchange Luno.
Luno Malaysia country manager Scarlett Chai said that cryptocurrency adoption has already delivered notable benefits to millions of Malaysians.
"As it is classified as a security in the country, Malaysians have viewed cryptocurrencies as diversifying their investment portfolios beyond conventional investment vehicles such as equities, bonds, real estate, and precious metals.
"Unknown to many, Malaysia is home to some of the most impactful companies in the crypto industry, such as CoinGecko and Etherscan," she told Business Times.
Her comments come in response to the government's plans to develop a policy on digital finance, which could pave the way for the official recognition of cryptocurrency and blockchain technology in Malaysia.
Prime Minister Datuk Seri Anwar Ibrahim recently revealed that he had engaged in discussions with the Abu Dhabi government and Binance, a global leader in cryptocurrency and blockchain technology, to explore how these innovations can be integrated into Malaysia's financial landscape.
Although cryptocurrency is not recognised as legal tender in Malaysia, it is not illegal.
The country has established comprehensive policies to regulate cryptocurrencies and digital assets with the Securities Commission (SC) and Bank Negara Malaysia serving as the key regulatory bodies overseeing the sector.
Currently, digital assets are classified as securities, meaning they are governed by securities laws and overseen by the Securities Commission Malaysia. The Commission has also put in place guidelines to regulate the digital asset market.
Among them are the recognised market operators, which govern digital asset exchanges like Luno in the facilitation of trading of digital assets.
While applauding Malaysia's interest in exploring cryptocurrency and blockchain technology as part of its digital transformation, Chai noted that one of the biggest challenges will be aligning various stakeholders.
She said crafting a policy on crypto and blockchain technology will require coordination among multiple regulators and government agencies before any draft can be finalised.
"Another challenge would be the scepticism imposed on regulated crypto industry players by financial institutions for being deemed too risky despite the strict compliance requirements.
"While there is no one-size-fits-all solution, a continuous discussion between government agencies, regulators, and industry players would be the best way to ensure all stakeholders involved share their expertise in moving forward for the benefit of the country and the industry," Chai added.
Socio Economic Research Centre (SERC) executive director Lee Heng Guie said digital assets could enhance cross-border payment in a more efficient manner.
It offers faster and cheaper settlement as it advances efficiency in financial services through automation and improved liquidity management, he said.
He stated that digital assets expand the inclusiveness and accessibility of financial services to the underbanked and unbanked communities.
However, Lee said challenges and concerns persist on the use of digital currencies for criminal activities, such as money laundering and terrorism financing, due to the lack or absence of customer identification.
"Consumer protection against the risks posed by the lack of controls or unregulated parts of the digital asset intermediaries, rendering the digital assets vulnerable to cyber hacking.
"The vast amounts of electricity used in the mining of cryptocurrency raise concerns about the allocation of resources and environmental consequences," he added.
Lee noted that the central bank can take a pragmatic approach moving towards this direction of adopting digital assets, which offer a low-cost solution for digital payments.
He said appropriate regulation, supervision, and oversight of the digital assets need to be in place, along with raising awareness and education among users, like safeguarding public trust in it while mitigating the associated risks.