Vietnam needs a legal framework for cryptocurrencies

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Vietnam lacks the legal framework for cryptocurrencies

>> Legal framework needed to better manage cryptocurrency market

Vietnam is one of the most active crypto-currency trading hubs in the world despite not being a technology power. In terms of the volume of peer-to-peer (P2P) transactions, Vietnam is ranked second in Chainalysis' 2022 Global Cryptocurrency Adoption Index.

However, according to Dr. Pham Nguyen Anh Huy, senior lecturer in finance and founder of the RMIT FinTech-Crypto Center under RMIT Vietnam, it is still too soon for the sector to become a huge player in the Vietnamese economy.

The shortage of legal frameworks

Offshore exchanges like Binance or Remitano are able to operate in Vietnam without any requirement for a license for financial service providers. It is very different from Singapore or Hong Kong, where licenses are only granted following rigorous selection processes.

Additionally, cryptocurrency investors are not required to pay taxes on any gains they make.

Dr. Anh Huy asserts that there have been issues as a result of the absence of a legal framework. First, investors who fall victim to fraud are not protected. Second, it's challenging for law enforcement to find illicit and fraudulent activity involving cryptocurrencies, such as money laundering. Third, the business climate becomes unstable. Finally, the tax authorities are unable to recoup taxes from activity related to cryptocurrencies.

In the long run, these problems can undermine market trust and lessen Vietnam's appeal, especially once the initial euphoria subsides.

The gambling mindset

In Dr. Anh Huy’s view, investors in virtual assets in Vietnam frequently believe they can "gamble" their way to financial success.

Crypto projects boomed during the bull market that lasted from late March 2020 to mid-November 2021. Investors continue to have faith in their abilities to recover losses by placing bets on other shady companies, despite warnings about some scam projects.

>> Vietnam needs regulations of digital, virtual assets

This behavior results from the fact that investors frequently overlook the over 90% failure rate of cryptocurrency initiatives, just like startup investments. Dr. Huy Anh acknowledged that this way of thinking will harm investors, particularly novice ones. Given the manipulation of the cryptocurrency market, they will eventually be driven out by major players.

The Vietnamese market nevertheless has distinctive features despite the aforementioned difficulties.

Dr. Pham Nguyen Anh Huy, senior lecturer in finance and founder of the RMIT FinTech-Crypto Center under RMIT Vietnam

A vibrant and dynamic community

In the following ten to fifteen years, almost 70% of the Vietnamese population will be of working age. It is anticipated that this young, tech-savvy community will help make cryptocurrency acceptance more widespread and long-lasting.

By 2030, the middle class is anticipated to comprise 50% of the Vietnamese population. With the largest middle-class population, the country may rank among the top 20 economies.

Education is also crucial for preserving Vietnam's status as a hub for the cryptocurrency industry. High-ranking institutions of higher learning for blockchain and cryptocurrencies exist in Vietnam, including RMIT University, which is the second-best blockchain university in the world.

Although Vietnam's restrictions on cryptocurrencies are still hazy, a more defined legal framework is anticipated in the future. Mr.  Le Minh Khai, Deputy Prime Minister, assigned the Ministry of Finance the task of developing a strategy to finalize the legislative framework for virtual assets, crypto-currencies, and virtual currencies in April 2022. The Vietnamese government is aware that if virtual assets like cryptocurrencies are not under legal control, they could cause financial instability and damage the entire economy.

Still a ton of work to do

To become a crypto hub with a favorable regulatory environment and home to some of the world's top crypto companies, Vietnam needs to take the necessary actions. Modern, sustainable, and integrated national digital finance will be a strong driving force for economic growth, ensuring macroeconomic stability and financial security by 2030.

In addition, the public and private sectors must be willing to experiment with crypto-currencies and study experiences of digital assets and tokenization. This will support the liquidity and efficiency; or baffle financial risks within a sound and facilitated regulatory framework.

Until then, there's still a lot of work to be done. If the solutions are not in sight soon, Vietnam could lose its "special and unique" opportunity to be a frontrunner in the crypto-currency race.