Thailand has seen explosive growth in the cryptocurrency sector since January, a process that has seen the country create its first billion-dollar startup or unicorn. Research conducted by Kasikorn Research Centre shows that over 50% of investors already have holdings in the new industry. The same research shows that this is not an ordinary asset bubble driven by a desire to get rich quick but by enthusiastic people who see a need for change in the financial sector. In other words, cryptocurrency and the new financial environment that is quickly coming up around it including DeFi finance, represent a very real financial revolution. 

The Bank of Thailand confirmed this week that it would begin the process of introducing new regulations to govern the use of cryptocurrency in Thailand in January which will certainly prohibit the use of such digital assets to buy and sell goods and services. It comes as the volatile market for cryptocurrencies saw bitcoin fall from a peak in early November while holding its own this week. Central banks worldwide, already facing an array of challenges including rising market uncertainty about the Chinese economy and the need to raise interest rates against inflation, have begun to look at the growing phenomenon as a potential threat to the world’s financial system. This is certainly the case in Thailand where innovative derivative loan products based on new and emerging decentralised financial or DeFi platforms, are attracting increased investor interest and have been flagged by the Security Exchange Commission as another area of concern. It has even led the regulatory body to call in top police agencies to help with monitoring and policing the new sector as it grapples to keep up with its fiduciary duty to protect investors and the public.

The Governor of the Bank of Thailand Sethaput Suthiwartnarueput (left) said this week that the central bank will be publishing a discussion paper in January as it moves to regulate and rein in the use of cryptocurrencies which senior directors of the bank have repeatedly warned should not be used for payment and trading purposes within the Thai economy and which have become the subject of a new DeFi or decentralised financial environment for loan products in recent times. The move comes as more and more investors and members of the public in Thailand have jumped on the cryptocurrency bandwagon which the pioneering founder of Thailand’s largest and dominant cryptocurrency exchange Bitkub, Jirayut Srupsrisopa (right), has hailed as a ‘mega trend’ which offers new opportunities to create wealth from economic growth in the future.

The Bank of Thailand and the Security Exchange Commission has, in recent weeks, gone to unprecedented lengths to temper the heating market in Thailand when it comes to digital assets and cryptocurrencies.

To authorities, the explosive growth in the sector threatens nothing short of a financial revolution that may pose a severe risk and real danger to the country’s financial stability.

This is a financial revolution in Thailand

Indeed, the fact that this is a revolution is the one thing that enthusiastic investors and promoters of the new marketplace, as well as increasingly worried regulatory officials, appear to agree upon.

Thailand’s first unicorn success story, hailed by Bangkok’s markets, turns over ฿9 billion a day

The involvement of the Security Exchange Commission, the body which regulates the cryptocurrency exchanges at the centre of the upheaval which are licenced by the Ministry of Finance on advice from the commission under the Digital Asset Business Act 2018, highlights the ambiguity in the current position being adopted by authorities.

Over 1.7 million digital investment accounts opened up predominantly by retail investors in Thailand

The reason for this is the runaway success of cryptocurrency investing in Thailand which has seen 1.7 million accounts opened.

The company leading the new financial sector, Bitkub, became Thailand’s first unicorn success story in November after a deal was struck with SCB Securities, the stock brokerage arm of Siam Commercial Bank to buy 51% of the 2018 start-up firm in a deal valuing the concern at over $1 billion.

Siam Commercial Bank is Thailand’s oldest commercial bank and is 25% owned by the country’s King Maha Vajiralongkorn.

The scale of the firm’s success can be seen from its daily turnover reaching up to ฿25 billion a day. That figure for the first nine months of 2021 was ฿1.09 trillion accounting for 92% of the Thai market.

Charismatic Jirayut Srupsrisopa says his firm Bitkub is now part of the country’s financial infrastructure

Now, Jirayut Srupsrisopa or ‘Topp’ the charismatic and inspirational 31-year-old founder and leader of Bitkub Capital Group Holdings, has both hailed his firm as a new and integral part of the emerging financial ecosystem in Thailand while also pointing out that investing in cryptocurrency is no longer the preserve of the younger generation of tech-savvy 20 to 30-year-olds as his firm increasingly sees a wider customer base getting involved.

‘Bitkub is no longer just a startup and is now becoming a necessary part of the infrastructure critical for Thailand’s financial industry,’ he told the media days after the announcement of the deal with Siam Commercial Bank which is expected to be completed in the first quarter of 2022 but which will, first of all, need approval from the Bank of Thailand and the Security Exchange Commission.

Bank of Thailand and Security Exchange Commission have issued repeated warnings about the accelerating expansion of cryptocurrency use in the kingdom

However, both bodies have, in the last week, issued statements pointing to their mounting concern about the widespread popularity of investing in digital assets and its increased adaptation as a means of payment.

Officials have hinted strongly at new regulations for the market particularly regarding the solicitation of investment in digital assets, their use of payments within the retail market and in connection with new financial products which have sprung up.

The bodies have cited concerns about the stability and volatility of digital currencies as an asset, the potential abuse of the market for money laundering purposes and the danger to the stability of Thailand’s financial system if the current developing situation is not further regulated.

Bitcoin and cryptocurrency value have had a rollercoaster ride in 2021 but have not crashed even as China outlawed the use of the new financial assets

Depending on the value of bitcoin and other cryptocurrencies, the value of these investments has fluctuated like a rollercoaster even in the last twelve months, hitting peaks in early April and early November.

Given that the current market value of cryptocurrency holdings worldwide is now estimated to be between $2.27 trillion to $3 trillion, the figure shows us that the world is already invested heavily in the sector which is one more factor for central bankers to worry about added to the unpredictable effects of the COVID-19 pandemic, rising inflation and the potential for financial contagion liked with the collapse of the property market in China which may also extend itself into the communist country’s banking sector and wider economy.

China could be an economic time bomb sitting on Thailand’s doorstep as Evergrande collapse nears

In late September, the Chinese central bank moved swiftly and declared all transactions via cryptocurrency illegal, effectively snuffing out the industry in the communist country’s economy already reeling from instability with Chinese investors looking to hedge their bets and invest outside its troubled financial system.

Enthusiasm among cryptocurrency investors has been rewarded by outsized returns well ahead of the stock market and even oil in the last year worldwide

For the rest of the world, it is easy to see why cryptocurrency assets remain on the table and why so many investors are interested.

Even as the price of bitcoin, which now only represents 41% of cryptocurrency investments in Thailand, has fallen since early November, cryptocurrency assets offer a 78% gain for the year compared to oil at 40%, stock exchanges worldwide at 15.88% while US Treasury 10 year bonds only offer a rate of return of 1.43%.

The problem is that it may all rest on an unsound foundation according to many seasoned investors and economic analysts.

As of the 13th December, the total amount of digital assets traded in Thailand for the year amounted to ฿1.75 trillion.

It comes at a time when many small business enterprises in the kingdom are struggling for cash with a lack of liquidity in the banking system and as the Bank of Thailand works to try to assist firms mired in debt as a result of the pandemic with proactive debt restructuring efforts to push the economy forward.

Thailand’s cryptocurrency pioneer says the new asset class represents a new financial ‘mega trend’ creating added value for economic growth in society

Part of the attraction of digital currencies to younger people is the very reason why central banks are becoming increasingly concerned, namely the fact that they have created a one-world market even though they are limited by blockchain technology.

With rising values and secondary loan products, they can theoretically create new wealth or economic prosperity across borders.

Speaking directly to the media, Thailand’s most successful young businessman Mr Jirayut or Topp, a western-educated former analyst and banker who initially pursued his vision from a one-room office above his mother’s Bangkok Store with a loan from his aunt to a billion-dollar company, gives us some understanding of why young people have so much faith in the asset class and financial innovation.

‘The investment in digital or cryptographic assets is one of the mega-trend of the world. The future will be larger than in the original model, this is the trend. In the future, digital assets will be many times larger. Everyone has to adapt. We can use this trend to create an ecosystem to support the new world. Government sectors can use these trends to create value for economic growth.’

Central banks have a problem – no ordinary asset bubble, some investors see cryptocurrencies as more secure than the current financial system

This is where the problem becomes acute for the banking system. 

The new cryptocurrency appeals to the desire of investors to see a change in world finance. The appeal is something more than just trying to get rich.

Recent research by the Kasikorn Research Centre has shown a dramatic rise in cryptocurrency investment activity over the last few years. Over 50% of active investors now have digital asset holdings. 

18.2% of investors said they had bought into the proposition after being attracted by stunning and hard to ignore rises in asset prices, 16.1% explained that they wanted to explore a new financial environment while 14.6% have become disillusioned about traditional financial assets.

There is a real thirst for change and growing scepticism about the status quo.

Significantly, 13.9% said they felt that digital assets provide more security than the existing financial system.

Bank of Thailand warns off other banks and financial institutions from becoming involved in trading cryptocurrencies amid a growing trend

The Bank of Thailand says it is particularly concerned about banks and financial institutions becoming involved with cryptocurrency trading and this was a key reason why it is moving swiftly towards enhanced regulation.

For now, the market is dominated by individual retail investors who accounted for ฿190 billion of activity in the sector in November in Thailand.

The market for cryptocurrencies is now widening to equally volatile alternative coins besides the two market leaders Bitcoin and Ethereum.

Bitkub itself has launched its own Kub coin whose value has fluctuated between ฿150 and ฿500 in the wild ride of the new asset class.

Foreigners in Thailand represented 16% of cryptocurrency trading activity this November

Foreigners in Thailand are also a key player in the market accounting for ฿39 billion in November followed by only ฿14 billion for firms and juristic persons.

The Bank of Thailand has made its strongest statement yet of its intention to rein in the cryptocurrency sector while trying not to impede innovation and entrepreneurship within the industry which has seen rapid progress over the last three years since the sector was legalised and regulated under groundbreaking 2018 legislation.

New regulation to be outlined in a consultation paper to be published by the Bank of Thailand in January

In January, according to Governor Sethaput Suthiwartnarueput, the bank will release a consultation paper titled ‘Financial Landscape’ in which it will lay down red lines or markers for all those involved in the industry.

Speaking on Monday, Mr Sethaput said the central bank would work hard to ensure more financial inclusion in the economy and continued innovation while maintaining its primary duty to manage systemic risks.

At the outset, he ruled out the use of cryptocurrency for payments.

The central bank has been working with the nation’s Securities and Exchange Commission and the Finance Ministry to outline ‘what are the red-lines we don’t want to see,’ Mr Sethaput explained. ‘For example, cryptocurrencies cannot become a means of payment.’

Wider Thai economy stunted by the pandemic crisis as firms struggle to restart amid a liquidity crunch

The revolution driven by the cryptocurrency market comes at a time when the wider economy has been stunted by the pandemic crisis with small business concerns finding it increasingly difficult to access capital in order to restart as the country reopens to foreign tourism amid rising demand from both consumers and external markets.

The pandemic itself has heightened the need for Thai investors to seek new horizons and new opportunities which financial regulators fear may have already gone a step too far leading them into dangerous territory which may ultimately imperil the nation’s economy if not tackled.

Mr Sethaput made it clear that senior officials believe that the risks inherent in the current environment are under-appreciated.

With Omicron hovering, firms already suffering a cash flow crunch with the economy again in peril

‘We want to ensure that we strike the right balance between allowing financial innovation and managing risks,’ said Mr Sethaput. The new rules will provide adequate safeguards for consumers as ‘risks are under-appreciated.’

New regulations to provide additional protection for digital asset investors says central bank chief

The new environment to be outlined will aim to provide greater protection for existing investors in cryptocurrencies while also providing more details on the bank’s own digital baht or officially backed digital currency which Mr Sethaput sees as the proper course to pursue to fulfil the need that currently exists in the marketplace for greater inclusion and access to financial services that is one of the underlying drivers of the cryptocurrency revolution.

He said the new digital baht will also help to lower costs in cross border transactions.

Bank of Thailand Monetary Policy boss warns that cryptocurrency’s advance threatens its key role

The news came after last week’s sharp warning from Bank of Thailand Director Sakkapop Panyanukul who oversees monetary policy.

‘If other currencies are widely used, it will impact the central bank’s ability to oversee the economy,’ he said. ‘For digital assets, we are not afraid of everything, but there is a spectrum, most worrying are blank coins.’ 

The rising concern of authorities has even led them to call in the Crime Suppression Division of the Royal Thai Police and the Central Investigation Bureau.

Officials met with police chiefs to discuss the sector

In the opening days of December, it was reported that officials from the Security Exchange Commission met with both police agencies in Bangkok to discuss cooperation linked with the investigation of possible crimes in the capital and digital asset markets.

The talks, described as a proactive move, looked at how the police may be able to monitor activities in the marketplace to protect those investing in it.

Officials are also reported to be concerned at the possibility that data may be leaked from platforms or the current infrastructure exploited by criminal minds either causing economic loss or creating an opportunity for money laundering.

The meetings, nearly two weeks ago now, included the participation of Ms Ruenwadee Suwanmongkol, the Secretary-general of the Security Exchange Commission and Police Lieutenant General Jiraphop Phuridech of the Central Investigation Bureau as well as Police Colonel Chakkrit Seributr of the Economic Crime Suppression Division.

Regulators are actively scrutinising the 2018 law licensing cryptocurrency exchanges and trading as they try to keep up with the exploding market 

These reports coincide with other reports indicating officials tasked with oversight of the sector including those within the Bank of Thailand were also studying the operations of the market and the existing provisions of the Digital Asset Business Act 2018.

There is a strong feeling that the current law, even though it was only introduced three years ago, has already been overtaken by developments and needs to be updated with regulatory measures in the short term although new legislation may ultimately be required.

Veteran US investor Charlie Munger is hostile to cryptocurrencies which he described as ‘rat poison’

The increasing concern over the popularity of cryptocurrencies among investors on the ground has seen veteran investor and one of the world’s most successful ever, 97-year-old American Charlie Munger, partner of Warren Buffett and the Vice Chairman of the legendary US investment behemoth Berkshire Hathaway come out to castigate cryptocurrencies and those operating within the roiling new markets.

‘I wish they’d never been invented. I admire the Chinese, I think they made the correct decision, which was to simply ban them,’ the straight-talking Mr Munger disclosed. ‘Of course, I hate the bitcoin success. I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shuffling out your extra billions and billions of dollars to somebody who just invented a new financial product out of thin air.’

He clearly viewed the phenomenon as a threat to the world. At one point he described the new asset class as ‘rat poison’ in an expression that shows his contempt is not only limited to the investment itself.

A threat to civilisation

‘I think I should say modestly that the whole damn development is disgusting and contrary to the interests of civilisation.’

Munger, who also has never invested in Gold, likened bitcoin to an artificial version of the world’s traditional hedge in February this year when he said: ‘It’s really kind of an artificial substitute for gold. And since I never buy any gold, I never buy any bitcoin. Bitcoin reminds me of what Oscar Wilde said about fox hunting. He said it was the pursuit of the uneatable by the unspeakable.’

Security Exchange Commission launches public consultation on cryptocurrencies as it ponders emerging new DeFi loan market and products

Last week, the Security Exchange Commission launched an operation to hear public opinion on the subject.

One rule being considered by the body was a ban on fund managers investing clients’ money into decentralised finance or what it termed as DeFi platforms. 

This is an even more troubling offshoot of the cryptocurrency market which allows money to be raised, leveraged and borrowed against cryptocurrency assets often at high rates of return.

The Security Exchange Commission went further and revealed that it had detected instances of fraud and cyber theft in connection with such activities but feared that current regulations and laws may not allow officials to properly investigate potential complaints which are linked to digital assets which are issued and controlled by private platform developers.

Decentralised financial platforms represent an entirely new form of financial service says Thai SEC

This new DeFi market and its associated transactions are being seen by regulators as something new entirely which demands immediate actions by authorities to protect both the public and the stability of financial markets.

This is understood to be part of a package of regulations aiming to tamp down the market which appears to have taken Thai officials by surprise since the beginning of the year.

Merkle Capital is the manager of a fund for digital investments which was established before 2018.

It reportedly applied for a licence from the Security Exchange Commission in February in connection with its activities.

New funds which allow for leveraged funds and borrowing against crypto assets present a new headache for regulatory officials

The Chief Executive is Mr Kannithi Tongtanagoon who also runs another fund called the Cryptomind Group which represents a vehicle for investments in DeFi which Mr Kannithi accepted, is currently not controlled or anticipated under Security Exchange Commission regulations or the Digital Asset Business Act 2018.

The fund is currently valued at ฿1.2 billion.

Another firm called KULAP holds a licence from the Security Exchange Commission and is led by founder Mr Palakorn Yodchomyan. He predicts that this new financial sector is set to take off in 2022 as digital assets expand further.

The Security Exchange Commission is already reported to be making a move to exert control over DeFi Platforms or Decentralised Finance Platforms by banning the advertising of such services to the public.

However, it also feels that there will be a need for new powers and regulations to provide the appropriate level of protection against the abuse by owners of such platforms online.

At the same time, the conundrum facing regulatory agencies can be seen from the fact that they are still trying to gather information and analyse further the activities within these new emerging markets and services that have stemmed from cryptocurrency trading.

Top Bank of Thailand director emphasises the danger of using cryptocurrencies as a means of payment 

Senior Director at the Bank of Thailand Chayavadee Chai-anan, last week, also expressed the central bank’s concern at the increasing adaptation by leading firms and businesses in Thailand of digital assets or cryptocurrencies as a means of payment. 

In recent weeks, Bitkub has unveiled a two-way partnership with one of Thailand’s leading retail chains to promote the use of cryptocurrencies for payment and as an investment vehicle.

At the same time, Mastercard announced in Singapore that it was partnering with cryptocurrency firms to launch the first Asia Pacific cryptocurrency credit cards.

Ms Chayavadee Chai-anan also expressed concern about the participation by some financial institutions in the use of cryptocurrencies for payment.

She said the widespread use of the asset could cause problems for the stability of the financial and payments system.

‘In the event that some commercial banks hold shares or have collaborated as an alliance in a digital asset business company through affiliates is not illegal. But those who use the service must bear the risks that may arise. Moreover, the Bank of Thailand does not allow commercial banks to be directly involved in the digital asset business,’ she said.

Bank of Thailand Monetary Policy Director says the bank’s own digital baht is the appropriate vehicle for digital payments in Thailand in the future

One of the bank’s key voices expressing concern about the cryptocurrency phenomenon is Dr Sakkapop Panyanukul, the Director of the Monetary Policy Department at the institution.

His chief concern is that most cryptocurrencies including Bitcoin and Ethereum are what he terms ‘Blank Coin’ meaning they have no corresponding value outside the market. He compares these t0 digital assets which are backed by real assets or by central banks. These digital assets he terms ‘stable coin’.

Bank of Thailand boss hints at a digital baht which may help revive the virus ravaged cash economy

Among these will be the Bank of Thailand’s own digital currency or digital baht when it is launched sometime next year.

Crypto assets present a threat to both liquidity in the financial system and the Bank of Thailand’s ability to protect and regulate the overall economy

His position is that, as things currently stand, unregulated use of cryptocurrencies in the payments market has the potential to destabilise the financial system by creating a black hole for financial liquidity and by making it more difficult for the Bank of Thailand to carry out its function to protect the financial system under its legal remit and to assist the government in healing the badly damaged Thai economy move forward, something that is particularly pressing as the country is struggling to emerge from the pandemic crisis.

‘Using digital assets to pay for goods and services which may not have to go through an intermediary makes a risk. It makes an impact on consumers and price volatility. Payment-related security standards or potential cyber threats mean they can be hacked. There is the potential for loss of assets or coins. And if it is widely used, it may affect the stability of the payment system. The threat to financial stability is because if people come to hold more digital money, the central bank has less control. Because people use less baht, the ability of the Bank of Thailand to control the financial situation in line with the economic situation has decreased. And taking care of volatility is more difficult. And when there is a crisis, it cannot be prevented.’

Bank of England – crypto assets could be worthless

On Tuesday, the Bank of England warned that the value of Bitcoin and other cryptocurrencies could plummet to zero. It is estimated that world holdings of crypto could be as much as $2.6 trillion which could become worthless almost overnight making 1% of global financial assets disappear.

Deputy Governor of the Bank, Sir Jon Cunliffe, speaking with the BBC in London, said this: ‘Their price can vary quite considerably and could theoretically or practically drop to zero.’

The shock for Thailand would be even greater given the emphasis that Thai investors have placed on this sort of asset since the start of the year.  

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