LAST week, the Securities Commission Malaysia unveiled four new initiatives to further liberalise the capital market and allow micro, small and medium enterprises as well as mid-tier companies better access to funding to grow their businesses.

One of these initiatives is the opening of registration for new “recognised market operators-digital asset exchange”, or RMO-DAX, to facilitate regulated digital asset investments.

“As investment in alternative assets is becoming more prevalent, the SC continues to promote responsible innovation within the digital asset space, while ensuring adequate protection of the interests of investors. This initiative enables investors to invest via regulated avenues and facilitates the entry of platforms with differentiated value propositions,” the SC said in an Oct 31 statement.

The move came as a surprise to many, given how many countries have turned less friendly towards cryptocurrency trading due to its volatile and speculative nature, after the multi-billion dollar crypto rout earlier this year following interest rate hikes in the US that had prompted investors to walk away from riskier assets.

A case in point is Singapore, which aspired to be a global cryptocurrency hub, but is no longer friendly towards cryptocurrency trading, after many retail investors lost their savings to such trading. The Monetary Authority of Singapore’s managing director Ravi Menon reportedly said on Thursday that Singapore still wants to be a crypto hub if it entails experimenting with programmable money and applying digital assets for use cases or tokenising financial assets to increase efficiency and reduce risks in transactions.

“But if it is about trading and speculating in cryptocurrencies, that is not the kind of crypto hub we want to be,” Menon was quoted as saying. MAS has also warned that cryptocurrency trading is “highly risky and not suitable for the general public” due to its volatile and speculative nature, and banned crypto advertising in public areas and on social media in January 2021. Singapore reportedly received about 180 applications from crypto companies for payment licences in 2020, but has given out 24 licences so far.

In Thailand, the government has announced plans to tighten supervision of digital-asset firms in July after a cryptocurrency sell-off saddled retail investors with large losses. The announcement came after Bangkok-based exchange, Zipmex, halted withdrawals and is seeking a bailout from some investors. Thailand’s Securities and Exchange Commission is now looking to amend existing digital-asset regulations, which were approved in 2018, to include stricter qualifications for management and licensing of crypto custodians.

Back in Malaysia, the announcement to open up for more DAX operators came a little over a year after the SC banned the world’s largest cryptocurrency exchange, Binance, from operating here in July last year for illegally operating a DAX.

SC chairman Datuk Seri Awang Adek Hussin told reporters on Oct 31 that “digitalisation of the market is a key priority for the SC so that market participants are able to adapt to digital trends and use technologies that will promote innovation with new business models and products or services including broadening access to market-based financing in a more efficient manner.”

When asked if the SC is now going to allow Binance, which has a daily turnover of US$76 billion (RM360 billion), to operate in Malaysia, Awang Adek said the exchange will need to apply for a licence. “Binance is already participating in existing local digital exchanges although their share is relatively small. So if they want to come in, we have to evaluate what will happen to the existing partnership in the country,” Awang Adek said.

There are presently four SC-registered DAXs in the country: Luno Malaysia Sdn Bhd, MX Global Sdn Bhd, SINEGY DAX Sdn Bhd and Tokenize Technology (M) Sdn Bhd.

In March, MX Global Sdn Bhd — led by Datuk Fadzli Shah, the brother of e-commerce FashionValet co-founder Datuk Fadzarudin Shah Anuar — announced that Binance and Cuscapi Bhd had invested in the company. It also announced that Binance has made an equity investment in the group, while Cuscapi has subscribed for redeemable convertible preference shares (RCPS).

While MX Global did not disclose the amount of Binance’s equity investment in the group, Cuscapi, revealed in a bourse filing that it had invested RM9 million in MX Global by subscribing to nine million RCPS at RM1 per share.

When asked if Binance is interested in applying for a licence to operate in Malaysia, its head of Asia-Pacific Leon Foong tells The Edge: “We don’t comment on specific processes. What we can say is that we will always respect local regulations and ensure that we remain compliant in the case of any market entry.”

Apart from Malaysia, MAS in December last year ordered Binance Singapore to stop all crypto transfers with the global exchange binance.com, which the regulator had placed on an investor alert list.

Growing demand among younger investors

As to why the SC is now open to more cryptocurrency investments in Malaysia, Awang Adek said the regulator needed the time to study the risk of digital assets investment. “In SC, everything new we have to be really careful. We have to make sure that we don’t open our market to something that will create problems. While we were reluctant to do that initially, the demand for [digital assets] has always been there.

“If we don’t approve and regulate this space, transactions ... will be done outside of our regulation and unregulated parameters, that will be more difficult for us,” he said.

He also highlighted that the demand for digital assets has been growing in Malaysia, especially among younger investors.

“At least if they operate within a regulated space, we know how many players there are, how much their investments are, so we will be more comfortable with the situation as we can monitor them, rather than not knowing what is happening out there.

“We know there are always people who want to invest in digital assets. This digital assets world will stay with us whether we like it or not,” he said.

According to the SC’s 2021 Annual Report, a total of RM21 billion in digital assets traded across all registered DAX. And there are about 760,000 accounts registered in 2021, four times the 190,000 accounts recorded in 2020. Investors aged below 35 years old comprised the largest segment at 62%, holding more than 470,000 accounts as at end 2021.

“The total amount of investment in digital assets is not big enough to worry us (yet), it is nothing like the stock exchange. Whereas in some countries it can be up to 50% of the stock exchange.

“So we are not worried about the risks. Of course in every investment the investors have to take on the risk if the price of the cryptocurrencies goes down,” Awang Adek added.