22 May 2024

Cryptocurrency holders are staring at an uncertain future, as the authorities are at a crossroads on how to regulate the use of digital assets amid their increasing popularity. 

Investors who envision a big role for cryptocurrency in the economy may have to rethink their options as the authorities are close to rolling out new measures to regulate virtual money.

While the emergence of cryptocurrency and other forms of digital assets may add value to the economy by opening up opportunities to businesses and individuals, they are also associated with risks.

The Bank of Thailand (BOT) reiterated on December 1 that it does not support the use of digital assets as a mode of payment for goods and services. The central bank also informed the public that it was working with other agencies to lay down proper regulations.

The BOT’s main concern is the potential impact on financial stability and public interest if digital assets are widely used as payment for goods and services.

The latest BOT move comes after Bitkub, Thailand’s largest digital asset exchange operator, announced with its partners like the Mall department store that they would accept payments in cryptocurrencies.

Bangchak Corporation, meanwhile, has teamed up with Bitazza, a digital asset broker, and announced plans to accept cryptocurrencies as payments for coffee at its gas stations next year.

Baht vs cryptocurrency

The Currency Act B.E. 2501 (1958) designates the baht as legal tender. So the central bank and the Finance Minister have the power to crack down on intruders in the realm of their authority to protect the baht’s role as the country’s legal currency.

Section 9 of the act states: “No person shall make, issue, use or put into circulation any material or token for money except by authority of the Minister.”  And Section 35 states: “Whoever violates the provisions of Section 9 shall be liable to imprisonment for a term not exceeding three years or a fine not exceeding fifty thousand Baht, or both.”

“While the Bank of Thailand has not publicly opposed the idea of digital assets, promoting these assets as a means of payment may step on the turf of the central bank,” said Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Securities.

Trading in cryptocurrency comes under the purview of the Securities and Exchange Commission (SEC), which grants licenses to digital asset exchange platforms.

Through its statement, the BOT has sent out a clear message that cryptocurrency and other digital assets should be used as investment products and not as an alternative currency.

“Digital assets are associated with high price volatility, as well as risks of cyber theft, personal data leakage and money laundering, which could be detrimental to the interests of merchants, businesses and consumers,” the BOT said.

The central bank said if digital assets become widely used as a means of payment for goods and services, such risks could affect the payment system’s stability, financial stability and consumer protection.

“Should the central bank ban the use of cryptocurrency as a mode of payment, cryptocurrency holders may still be able to use crypto to pay for goods and services, similar to those who use gold for payments — as long as businesses are willing to accept it,” says Pipat.

Regulatory risks

Currently, some businesses involved in real estate, hotels, cinemas, restaurants, medical clinics and car dealers have announced that they will accept cryptocurrencies, which are mostly Bitcoin, Ethereum, Zipmex token, Dogecoin, USDT, XRP, Stellar, Bitkub, and JFIN.

If cryptocurrency becomes widely used as a method of payment, there is the likelihood of the BOT stepping in and imposing an outright ban. The Bank of Indonesia does not allow cryptocurrency to be used for payments.

The central bank said its views on not supporting crypto as a means of payment and digital asset risks is consistent with that of regulators in other countries, such as the United Kingdom, the European Union, South Korea and Malaysia. Some countries have recently restricted the use of digital assets primarily for investment purposes, such as Indonesia and Vietnam, the BOT said.

The central bank’s move now poses regulatory risks for investors. Any ban on the use of digital assets as a means of payment could adversely affect its value and popularity.

It is likely to have an impact on Siam Commercial Bank’s Bt17.9-billion deal for a majority stake in Bitkub.

“Businesses have to manage their own risks, while the central bank has to look at financial stability as a whole,” said a senior official at the Finance Ministry on condition of anonymity.

It will also impact other local banks, such as Kasikornbank which also has expanded its services into digital asset businesses.

“Thailand needs to embrace the cryptocurrency economy, we have to use technology and we need not challenge others [regulators], as we can consult each other,” says Pipit Aneaknithi, president of Kasikornbank.

Wary of regulatory measures, Kasikornbank is moving with caution when compared to SCB’s multi-billion-baht takeover of Bitkub.

“We have to do it right the first time, not do it first then come back to fix it later,” said Krating Ruangroj Poonpol, chairman of Kasikorn Business- Technology Group.

Major cryptocurrencies

Market capitalization of digital assets worldwide is estimated at US$2.6 trillion and Bitcoin accounts for 42 percent of total market value, according to the SEC.

The major cryptocurrencies traded at digital asset exchanges in Thailand include Bitcoin, Bitkub, Wancoin, Cardano, Omisego, Ethereum, JFIN coin, SIX coin, USDT, XRP, XZC and Zipmex token.

Thai digital assets include Bitkub, Bitazza, Omisego, JFIN, and SIX.

Active trading accounts run by retail Thai investors in Thailand have more than doubled this year, from 248,000 accounts in April to 556,000 in November, compared with foreign investors’ accounts going up from 5,000 to 6,000. Total investment accounts were at 1.8 million at the end of October, according to the SEC.

What other countries do     

Former Finance Minister Thirachai Phuvanatnaranubala said the BOT’s recent move is in line with many other central banks, to restrict the use of digital assets as a means of payment.

Different countries have imposed different restrictions on digital assets.

China has prohibited the trading and mining of cryptocurrencies issued by the private sector.

Indonesia and Vietnam have banned cryptocurrency as a means of payment for goods and services.

The United Kingdom, Singapore and Japan are regulating fiat-backed stable coins as e-money by imposing measures aimed at protecting users, monitoring cyber-risks and preventing money laundering. The UK and Singapore are still holding public hearings on proper measures to regulate cryptocurrency and stablecoin.

Central American country El Salvador, meanwhile, has authorized Bitcoin as legal tender.

Meanwhile, Wyoming State is arguably the most crypto-friendly jurisdiction in the United States. However, federal regulators appear far more skeptical on the role of cryptocurrency.

By Thai PBS World’s Business Desk