While cryptocurrency exchange providers must go through a stringent selection process to obtain a licence in Singapore, with the same upcoming 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, the metaverse, and Web3, were launched in such an environment which helped boost national innovation and drive the digital economy.

However, the lack of a regulatory framework has led to several issues, such as the lack of investor protection if they get scammed; the difficulty of tracing crypto-related fraudulent and criminal activities such as money laundering; a volatile business environment; and the inability of the tax authority to collect taxes from crypto-related activities.

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

Given the get-rich-quick 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, ranking second in peer-to-peer exchange trade volume according to Chainalysis’s 2022 Global Crypto Adoption Index.

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 per cent.

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.

Despite the challenges, Vietnam remains unique as a nascent and growing crypto hub in various aspects. Firstly, Vietnam will still have a substantial proportion (around 68-70 per cent of the population) of working adults in the next 10-15 years. Vietnam is also expected to have around half 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. RMIT has also received the award of Pioneer University in Blockchain Training and Education at the recent Vietnam Blockchain Awards.

Although crypto regulation in Vietnam might remain unclear in the short term, the 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 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 eager to participate in the crypto space.

As Vietnam plans to establish a modern, sustainable, and integrated national digital financial platform, 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.

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.

Vietnam Investment Review