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Feb 07, 2023 / 16:45

Vietnam’s vibrant crypto scene needs a regulatory framework

Vietnam should identify what needs to be done to create a stable regulatory framework.

Vietnam should take the necessary steps to become a cryptocurrency hub that has a favorable cryptocurrency regulatory framework and hosts the world's leading crypto firms.

Lack of regulatory framework

 Most Vietnamese crypto investors have a "get-rich-quick" and "gambling" mindset. Photo: Pexels

While cryptocurrency exchange providers must go through a strict screening process to obtain a license in Singapore and soon in Hong Kong, exchanges such as Binance or Remitano can operate freely in Vietnam without a financial services provider license, and investors earn capital gains in crypto without having to pay any taxes.

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

However, the lack of a regulatory framework has led to unprotected investors in the event of a scam, difficulty in tracking fraudulent and criminal activities related to cryptocurrencies, such as money laundering, a volatile business environment, and the inability of tax authorities to collect taxes from cryptocurrency-related activities.

In the long run, these problems can erode market confidence and make Vietnam less attractive, especially when the hype dies down.

'Gambling' mindset of Vietnamese investors

Given the "get-rich-quick" and "gamble" mentality of most Vietnamese crypto-investors, coupled with the lack of a regulatory framework, it is no wonder that Vietnam is one of the most active cryptocurrency trading hubs in the world (it ranks second in peer-to-peer (P2P) exchange trading volume according to Chainalysis' Global Cryptocurrency Adoption Index 2022).

During the bull market, when the market was rising from late March 2020 to mid-November 2021, crypto projects proliferated, and despite being ripped off by several projects, investors still somehow believed in the ability to recoup their losses by betting on other projects, which led to more losses.

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

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

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. The country 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 took the number two position in blockchain globally. RMIT has also received the award of Pioneer University in Blockchain Training & Education at the recent Vietnam Blockchain Awards ceremony organized by the Vietnam Digital Communications Association and Vietnam Blockchain Union.

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

Therefore, it is likely that a clearer regulatory framework or direction will materialize 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 2022. 

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

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 with a favorable crypto regulatory framework and home to world-leading crypto firms.

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 tokenization, to increase liquidity and efficiency, and possibly reduce financial risk under a solid and incentivized 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.

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