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but what is driving the uptake and will it last?getty

Cryptocurrency may have originated in the G7 if we assume Satoshi Nakamoto is Japanese but in practice developing countries have often been the most enthusiastic about embracing decentralized virtual currencies. The reason is simple: Cryptos promise of financial democratization has a strong appeal in countries where large segments of the population lack access to certain banking services.

It is not a coincidence that Asias two largest developing countries, China and India, have cracked down hard on crypto while emerging Southeast Asia has not. About 80% of the people in both of those countries have bank accounts.

In contrast, up to 70% of Vietnamese are unbanked, as are around 66% of Indonesians and 44% of Filipinos. Regulators in these countries are, unsurprisingly, less quick than their counterparts in China and India to restrict access to cryptocurrency.

To be sure, they recognize that crypto is not a panacea for financial exclusion, but they also do not see it as a threat to the integrity of their respective central banks, and in the case of the Philippines, are even allowing its use for payments. Crypto could thus ultimately help to boost financial inclusion in some of Southeast Asias most important emerging economies.

Vietnam has been slow to adopt crypto regulations, though it allows its citizens to hold virtual assets. It does not recognize cryptocurrencies as legal tender.

In this legal gray area, crypto has found space to thrive. A March 2023 report by Chainalysis finds that almost 17% of Vietnams 97 million people own cryptocurrency, with bitcoin being the most popular digital asset. It would seem that the collapse of FTX and persistent bear market have not undermined the faith of Vietnamese in decentralized digital currencies.

One likely reason for cryptos popularity in Vietnam is that it has important practical uses. For instance, the 600,000 Vietnamese working overseas in more than 40 countries annually remit an estimated US$3-3.5 billion every year, according to Vietnamese government data. While traditional remittance methods have high transaction fees, using crypto can be significantly cheaper.

With that in mind, Strike, a digital payments platform built on Bitcoins Lightning Network, in late March announced the launch of money transfers from the U.S. to Vietnam in partnership with the crypto exchange Getbit. In a press release, Strike said it would enable lightning-fast transfers from U.S. dollars received as local currency in a recipient's bank account in Vietnam. Vietnam is among the top ten largest receiving remittance markets from the U.S. In 2021, the country received more than $18 billion in remittances.

We're thrilled to play a role in building a more inclusive experience and shaping the future of payments, Abhay Agarwal, Founder and CEO of Getbit, said in the press release.

For its part, Indonesia has generally been supportive of crypto as an investment class, but not for payments. Bank Indonesia banned payment processors from using cryptocurrency to settle transactions in 2016 and in late 2017 prohibited financial institutions from using crypto for payments. During the last crypto bull market in 2021, the Indonesian central bank even mobilized official supervisors to enforce the ban on financial institutions using crypto assets as a means of payment.

That said, Indonesia plans to set up a cryptocurrency exchange this year ahead of a shift of regulatory powers over digital assets to the Financial Services Authority from the Commodity Futures Trading Regulatory Agency, known as Bappebti. Indonesian regulators believe virtual assets should be regulated on an equal basis with other financial and investment instruments. According The Paypers, as of early 2023, there were 383 crypto assets and 10 local coins that can be traded in Indonesia, while an additional 151 assets and 10 coins under review by Bappebti.

In the most recent crypto bull market, Indonesian investors were very active. Transaction volume of crypto assets in the country rose more than 1,000% in 2021 to 859.4 trillion rupiah ($57.37 billion), according to Bappebti's data.

A widely cited survey published by Gemini in April 2022, the "Global State of Crypto Report," found that 41% of Indonesians aged between 18 and 75 years old with an income of more than $14,000 per year own crypto assets. The country shared the top spots with Brazil among the 20 countries surveyed by Gemini.

The Philippines is the most pro-crypto country in Southeast Asia, buoyed by regulatory tolerance linked to the central banks digitization and financial inclusion goals. Bangko Sentral ng Pilipinas (BSP) aims for 50% of retail payments to be digital by the end of 2024 as well as for 70% of adults to be financially included. Crypto can probably help support these goals. For instance, UnionBank has also launched a payments-focused stablecoin pegged to the Philippine peso for financial inclusion purposes. It attempts to link the main banks of the country to rural banks and bring financial access to previously unbanked parts of the country.

Estimates of crypto ownership in the country vary widely. For instance, a recent study by CoinJournal, the Philippines ranked globally by number of virtual asset traders about 7 million or 6% of the population of 113 million. However, according to Finders Cryptocurrency Adoption Index, the crypto ownership rate in the Philippines is 15%, with almost 11 million Filipinos owning digital assets.

Meanwhile, like Vietnam, the Philippines has a huge remittances market. Data released by the central bank showed personal remittances increased by 3.6% to a record high US$36.1 billion in 2022 from the previous high of $34.9 billion in 2021. Personal remittances the sum of net compensation of employees, personal transfers and capital transfers between households accounted for 8.9% of the Philippines GDP.

With that opportunity in mind, digital payments firm Strike expanded into the Philippines in January.

Given the potential financial inclusion benefits of digital assets, we expect that regulators in emerging Southeast Asia will gradually take steps to legalize their use. The gray area in which crypto has operated in these countries until now will eventually become blacker and whiter.

Vietnam has considered crypto regulation over the years, but to date, has been slow to enact any rules. That should change given the adverse effects on investors of the FTX collapse. In the aftermath of the exchanges implosion, Prime Minister Pham Minh Chinh reportedly said that the government should study crypto regulation, which followed an earlier request by Deputy Prime Minister for General Economics Le Minh Khai that the countrys Ministry of Finance develop a regulatory framework for digital assets.

Indonesia can be expected to follow through with its planned national crypto exchange, while the Philippines will likely be the most crypto-friendly of the three countries, even allowing a wide variety of crypto payments.

Given the recent passage of MiCA in Europe, stablecoins may have a way forward as a viable Web3 payment method that eschews the problems of cryptocurrencies without a peg. If that proves to be the case, Vietnam and Indonesia may eventually reverse their crypto payment bans, which are linked to a regulatory concern about the inherent instability of digital assets like bitcoin, and thus allow a larger virtual currency ecosystem to take root in both countries.

I am the Founder and Director of Kapronasia, one of Asias leading providers of consulting services focusing on the fintech industry. I have been involved in financial technology for over 20 years and covers all topics fintech and blockchain. Before Kapronasia, I was the Global Banking Industry Manager for Intel based out of Shanghai, China and, prior to Intel, was the CIO for Citigroup Portugal. I have testified in front of the U.S. Congress on issues of China fintech and am the author of Chomping at the Bitcoin: The History and Future of Bitcoin in China published by Penguin. I hold a B.S. in Computer Science from Syracuse University and an MBA from INSEAD.

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Why Emerging Southeast Asia Is Crypto Friendly - Forbes