Vietnam's vibrant crypto scene needs a regulatory framework

Tiếng Việt

Vietnam's vibrant crypto scene needs a regulatory framework

RMIT Senior Lecturer Dr Pham Nguyen Anh Huy analyses Vietnam’s growth as a crypto hub and identifies what needs to be done to create a stable regulatory framework.

Lack of regulatory framework

While cryptocurrency exchange providers must go through a stringent selection process to obtain a licence in Singapore and soon-to-be in Hong Kong, exchanges like Binance or Remitano can freely operate in Vietnam without a financial service provider licence, and investors who make capital gains on crypto do not have to pay any taxes.

Many crypto projects, especially GameFi, Move to Earn, Metaverse and Web3, were launched in such an environment which helped boost national innovation and drive the digital economy.

news-1-vietnams-vibrant-crypto-scene-needs-a-regulatory-framework

Dr Pham Nguyen Anh Huy, Senior Lecturer in Finance, Founder of RMIT FinTech-Crypto Hub, RMIT University Vietnam.

However, the lack of a regulatory framework has led to several issues:

(i) the lack of investor protection if they get scammed;

(ii) the difficulty of tracing crypto-related fraudulent and criminal activities such as money laundering;

(iii) a volatile business environment; and

(iv) the inability of the tax authority to collect taxes from crypto-related activities.

In the long run, these issues may dampen market confidence and make Vietnam less attractive, especially when the hype is over.

'Gambling' mindset of Vietnamese investors

Given the “get-rich-quick” and “gambling” mindset of most Vietnamese crypto investors coupled with the lack of a regulatory framework, it is not surprising that Vietnam is one of the most active crypto trading hubs in the world (ranked number two in peer-to-peer (P2P) exchange trade volume according to Chainalysis’s 2022 Global Crypto Adoption Index).

news-2-vietnams-vibrant-crypto-scene-needs-a-regulatory-framework

Most Vietnamese crypto investors have “get-rich-quick” and “gambling” mindset.

During the bull market when the market was going up from late March 2020 to mid-November 2021, crypto projects mushroomed, and despite being swindled by several projects, investors still somewhat believed in the ability to recover their losses by betting on other projects leading to further losses.

This behaviour can be attributed to the fact that investors often forget that crypto projects are just like any other startup that has a fail rate of over 90%. Overall, the current mindset will not favour investors, especially small retail investors, in the long term as they will be driven out by big players or whales given the manipulative nature of the crypto market.

Vibrant scene and educated people

Despite the challenges, Vietnam remains unique as a nascent and growing crypto hub in various aspects.

First, Vietnam will still have a substantial proportion (approx. 68-70% of the population) of working adults in the next ten to 15 years. Vietnam is also expected to have around 50% of its population in the middle class by 2030, making it one of the top 20 economies with the largest middle-class population. Being a young and technology-savvy population cohort, they are expected to drive crypto adoption further and in a more sustainable manner.

In addition, education is key to maintaining Vietnam’s position as a crypto hotspot. Vietnam is home to highly ranked universities in blockchain and crypto education such as RMIT University which ranked number two in blockchain globally.

Although crypto regulation in Vietnam might remain unclear in the short term, the Vietnamese government understands crypto assets may destabilise the financial system and the economy if left unregulated.

Therefore, it is likely that a clearer regulatory framework or direction will materialise in the next year or so, given the instruction from the deputy prime minister to the Ministry of Finance to complete the legal framework for virtual assets, cryptocurrencies, and virtual currencies in April this year.

Finally, the fact that Vietnam has been ranked number one in Chainalysis’ crypto adoption index for two years in a row shows that the Vietnamese are very willing to participate in the crypto space.

However, given the previous frauds and the current bear market when the market is going down, the crypto industry needs to enhance its credibility and show its relevance to the economy to retain and attract more users.

Much work to be done

As Vietnam plans to establish a modern, sustainable, and integrated national digital financial platform that will contribute to the growth of the economy, while ensuring macroeconomic stability and financial security by 2030, the country must take necessary actions to become a crypto hub that will have a favourable crypto regulatory framework and be home to world-leading crypto firms.

news-3-vietnams-vibrant-crypto-scene-needs-a-regulatory-framework

Much still needs to be done to take advantage of the vast potential Vietnam has in growing its cryptocurrency industry.

In addition, the public sector and the private sector must be willing to experiment with programmable money and explore use cases for digital assets and asset tokenisation, to increase liquidity and efficiency, and possibly reduce financial risk under a solid and incentivised regulatory framework.

Until then, still a lot of work needs to be done and Vietnam might lose its “special and unique” opportunity to become a leader in this crypto race if it does not act fast.

This story was originally published by ThinkChina in December 2022.

Story: Dr Pham Nguyen Anh Huy, Senior Lecturer in Finance, Founder of RMIT FinTech-Crypto Hub, RMIT University Vietnam

Business and management

Science and technology

02 February 2023