Vietnam necessitates the development of a comprehensive legal framework for digital assets.
Unregulated Crypto World: Vietnamese Investors Tread Carefully Amidst Financial Risks
HANOI, VIETNAM – As the digital assets market boom flourishes, gleaming with opportunities for innovation and financial growth, experts caution about regulatory gaps and the vulnerability of Vietnamese investors to legal, financial, and operational risks.
Despite Vietnam ranking as one of the top countries for cryptocurrency adoption globally, many locals engage in entry-level transactions without a deep understanding of the market. According to Truong Gia Bao, Chairman of the Sustainable Blockchain Club, a significant number of Vietnamese traders exhibit 'FOMO' (Fear Of Missing Out) – jumping into transactions without adequate knowledge or planning.
"Our local market may be wide, but it's not deep," Bao noted. "We see millions participating in simple transactions, but few making institutional-grade investments or developing blockchain solutions."
With an estimated community of ten to seventeen million cryptocurrency holders in Vietnam, as reported by the American firm Chainalysis, inflows reaching around US$120 billion between July 2022 and June 2023, there's money to be made – if you know the risks.
A crypto trader watches market movements. - Photo nld.com.vn
Right now, there's no comprehensive legal framework for cryptocurrency exchange activities in Vietnam. Digital assets like Bitcoin and Ethereum are not recognized as legal tender, and official guidance for opening or managing crypto accounts on foreign platforms remains absent.
This lack of legal clarity leaves investors, particularly those engaging in peer-to-peer trading, vulnerable to fraud, money laundering, and asset loss. According to Nguyen Dinh Thang, Chairman of the Vina Fintech Club and Head of the Digital Asset Management Centre, the system lacks safeguards, and "when things go wrong, there's no formal mechanism for recovery or protection."
Given these risks, the global collapse of cryptocurrency exchanges, such as Terra-Luna and FTX, drives the point home: inadequate regulation and corporate governance can have devastating consequences for individual investors, with little recourse for losses.
However, some experts believe embracing smart regulation and central bank digital currencies (CBDCs) could prove profitable for Vietnam. A state-issued digital currency, backed 1:1 by physical currency, could offer price stability, increased transaction efficiency, and serve as a regulated alternative to private cryptocurrencies.
Speakers at a conference on digital assets last year in Việt Nam. VNA/VNS Photo
While efforts are underway to establish a legal framework and regulatory systems that adapt to the constantly evolving digital finance market, in the interim, experts advise Vietnamese investors to be diligent and cautious when participating in cryptocurrency trading, especially on unregulated international platforms. Be prepared for a bumpy ride.
- In the absence of a comprehensive legal framework for cryptocurrency exchange activities in Vietnam, investors are exposed to risks, particularly those involved in peer-to-peer trading.
- The lack of recognition for digital assets like Bitcoin and Ethereum as legal tender, coupled with the absence of official guidance for opening or managing crypto accounts on foreign platforms, leaves the Vietnamese crypto market vulnerable to fraud, money laundering, and asset loss.
- Given these risks, the global collapse of cryptocurrency exchanges underscores the potential consequences of inadequate regulation and corporate governance for individual investors.
- The widespread adoption of cryptocurrency in Vietnam, with an estimated community of ten to seventeen million holders and inflows reaching US$120 billion, presents opportunities for financial growth and innovation.
- However, most locals engage in entry-level transactions without a deep understanding of the market, exhibiting 'FOMO' (Fear Of Missing Out) and failing to make institutional-grade investments or develop blockchain solutions.
- Embracing smart regulation and central bank digital currencies (CBDCs) could potentially offer benefits such as price stability, increased transaction efficiency, and a regulated alternative to private cryptocurrencies.
- Experts are working to establish a legal framework and regulatory systems that adapt to the digital finance market, but in the meantime, caution is advised when participating in cryptocurrency trading, especially on unregulated international platforms.
- The development and implementation of sustainable policies for the burgeoning technology of cryptocurrency and blockchain is crucial for ensuring long-term success and mitigating risks for both investors and traders alike.
