Even after the global cryptocurrency market’s latest collapse, blockchain innovations, such as crypto-assets and non-fungible tokens (NFTs), remain poised to redefine Southeast Asia’s fintech sector. Regional governments have so far demonstrated an eagerness to leverage these innovations, allowing the emergence of various blockchain platforms with lucrative funding, as well as further technological development.
In tandem with growth-friendly policies, governments have taken a range of regulatory responses to blockchain, particularly concerning illicit transactions. While Southeast Asia’s crypto landscape continues to expand, authorities recognize the increasing opportunities for criminal actors to exploit platform vulnerabilities via hacks, frauds, and scams.
Most pertinently, the Monetary Authority of Singapore’s recent guidelines on cryptocurrency advertising in public spaces reflect a growing acknowledgement of the wider social risks arising from blockchain, which in turn facilitate the rise of crypto-related crime. As Southeast Asian users remain determined to capitalize on blockchain’s growth trend, regional governments face the unique challenge of confronting these social risks, while reaffirming their commitment to fintech innovation amidst the current turmoil in the crypto world.
Compounding this challenge is the region’s status as one of the world’s fastest-growing cryptocurrency markets, notwithstanding the regulatory and price uncertainties. The resultant surge in blockchain fanfare has prompted speculative investors to devote substantial funding to unfinished projects, making them especially susceptible to “rug pull” scams.
However, the pervasiveness of such scams is readily matched by the extent of the hype around blockchain in Southeast Asia. For example, despite recent evidence suggesting that global NFT popularity is waning, including a decline in prices and trading volumes, regional NFT adoption is nevertheless forecast to continue rising. With several Southeast Asian nations already having some of the world’s highest NFT adoption rates, regional users’ fears of missing out are sustaining key cryptocurrency trends regardless of the potential dangers.
Such trends heighten Southeast Asia’s vulnerability to cryptocurrency crime. Even so, many of blockchain’s criminal applications, such as money laundering and terrorism financing, are largely irrelevant to investors primarily concerned with maximizing personal profits. Rather than sound investment fundamentals, baser instincts such as greed drive users’ desire to ride the current wave of crypto-exuberance. Ongoing attempts to deal with cryptocurrency crime will be futile if users themselves are apathetic, or unaware of their own vulnerability.
Southeast Asian demographics also reflect an ongoing paradigm shift in investing, whereby younger investors are increasingly reluctant to invest in tangible assets with limited upside, in contrast with older investors’ traditional reluctance to invest in non-physical assets with greater downside risk. These attitudes remain largely unchanged in the wake of the crypto price crash. For instance, although many Singaporean investors in their 20s and 30s experienced significant losses following the collapse of the popular Luna and TerraUSD stablecoins, several users reiterated their intention to continue investing in cryptocurrencies, citing their potential – even despite a loss of over S$500,000 in the case of one individual.
Beyond Singapore, the region’s young, digital-savvy population also complements blockchain’s appeal to libertarian and anti-establishment sentiments, which contributes to a social media-friendly message. Today’s online information environment has a further impact on how users socially construct this emerging technology, amplifying the above sentiments and entrenching users’ mindsets. In order to explain the rise of these sentiments, a broader conversation on how regional users perceive the store of value in cryptocurrencies, in relation to other financial instruments, is necessary.
Crucially, many of these regional perceptions and values arise from frequent interactions with blockchain technology, for example, via the NFT-based play-to-earn games that are extremely popular in Southeast Asia. Between 2020 and 2021, the number of daily active Axie Infinity players grew from approximately 10,000 to over 2 million, with the majority of players from Southeast Asian nations. Amid widespread unemployment during the COVID-19 pandemic, trading NFT avatars with the game’s cryptocurrencies proved a valuable alternative income source among Filipino players in particular.
But beyond this positive hype lies myriad social risks, which are especially difficult to manage in Southeast Asia due to blockchain’s ubiquity. Built around artificially-driven scarcity, crypto-based platforms have the potential to fuel regional inflation and inequality, accentuating the pandemic’s disproportionate impact on the vulnerable, and making the prospect of an uneven economic recovery more probable. Furthermore, as the technology continues to shape users’ perspectives regarding value and money, artificially-driven demand not only creates a favorable environment for cryptocurrency scams to occur, but would also bring considerable risk to speculative investors, given the extraordinarily uncertain value of crypto-assets.
This is not to disregard blockchain’s prospective benefits, as several Southeast Asian nations have acknowledged the technology’s significant potential to improve payment efficiency and strengthen e-commerce. However, in light of the above risks, authorities would also be well advised to enact regulations addressing the concepts of protection and liability, particularly as an increasing number of users fall prey to these risks and begin to demand more government action and accountability. Regional governments will nevertheless be keen to ensure that such regulations do not negatively affect business confidence, as an increasing number of cryptocurrency firms relocate from Southeast Asia to the United Arab Emirates.
Ultimately, any response should place a proportionate focus on protecting the retail investor from the uncertainties surrounding the technology, while also recognizing distributed ledgers as legitimate platforms for financial transactions. Authorities should therefore avoid sensationalizing or promoting moral panics around blockchain, as users with deeply ingrained views about the technology are unlikely to waver, and may even be further driven toward questionable crypto-based platforms, making such strategies counter-productive.
Southeast Asian users will also have to accept greater responsibility with regard to disclosing any risks and dangers involved, such as loss or theft of crypto assets. The Canadian Securities Administrators’ 2021 notice for crypto issuers and asset holders directs users to take appropriate measures to protect their own assets, and to be able to justify these measures. While these priorities are most relevant, Southeast Asian nations may also wish to establish further initiatives designed to educate the public and promote social responsibility around blockchain, such as outlining due diligence procedures and best practices around crypto assets, as well as ethical cryptocurrency mining. An educated and socially responsible populace would reduce the need for heavy-handed regulations as far as possible, thereby allowing for a conducive business environment, and also ensure that users themselves are adequately protected.
