In Indonesia, more people have a smartphone than a bank account, and trading crypto assets is increasingly seen as a path to quick profits. Last year, the total value of crypto transactions in Indonesia was 64.97 trillion rupiah (USD$4.4 billion), but between January and May 2021, it was 370.4 trillion rupiah, according to the head of the country’s futures trading regulator.
Crypto asset trading was legalized less than three years ago in Ministry of Trade Regulation No. 99 of 2018, which officially permitted crypto assets futures trading. A few months later, the Commodity Futures Trading Supervisory Authority, known in Indonesian as Bappebti, issued Bappebti Regulation No. 5 of 2019 to provide a detailed regulatory framework for crypto asset futures.
It is barely six months since a list of 229 legally tradable crypto assets was made public, but by that time, the hype around the crypto industry had already reached fever pitch.
By June, the number of investors had increased by 280% from 1.5 million in 2020 to 4.2 million, and daily trading volume had reached 1.7 trillion rupiah (US$117.4 million), according to data from Blockchain Association of Indonesia.
Not for spending
Among the uncertainties surrounding Indonesia’s crypto regulations, one thing is clear: cryptos are not to be used as a form of payment.
Article 23B of the country’s constitution stipulates that the Indonesian currency is decided by law, and 2011’s currency law dictates that almost all financial transactions in Indonesia must be made in rupiah, the nation’s only official currency. Exceptions are made for international transactions, government spending and bank savings.
Under Indonesian law, the purchase and sale of cryptocurrencies is permitted only for investment purposes or for legally defined crypto assets, and the central bank recently reiterated that cryptocurrencies are not a legitimate form of payment. Banks are prohibited from facilitating using cryptos as payment, Bank Indonesia Governor Perry Warjiyo told a webinar in June.
However, there appear to be relatively easy ways to get around the prohibition. Local education charity Happy Hearts Indonesia, for instance, has received Bitcoin through U.S. crypto exchange Gemini.
Happy Hearts Indonesia CEO Sylvia Beiwinkler said the charity had recently joined The Giving Block, a U.S.-based service that facilitates crypto donations to non-profit organizations.
“Currently, HHI is applying for non-profit 501(c)(3) status in the U.S., and in the meantime we work through our affiliated partner, All Hands and Hearts to receive crypto donations,” she told Forkast.News. “Once AHAH receives the donations, they will exchange Bitcoin in the U.S., then transfer the donations in U.S. dollars to us.”
Although the government has legalized certain crypto assets, it is still trying to keep pace with developments in the rapidly-evolving industry.
Deputy Minister of Trade Jerry Sambuaga announced several months ago that the ministry would provide a digital currency or a cryptocurrency with its own crypto exchange in the near future, according to a report by local media outlet Tempo. A later report citing the head of the futures regulator said an exchange would be operational by the end of 2021.
Sambuaga said the exchange would be able to accommodate and regulate the trading of crypto assets. He said digital assets could function as alternatives to traditional assets, and might even be the “main pillar to increase [Indonesia]’s trade.”
Steven Suhadi, a member of the supervisory board at the Indonesia Blockchain Association and co-founder of Coinvestasi, a crypto media platform, said: “It’s not strictly an exchange, per se, like Binance, because this exchange is more there to help monitor the current exchanges in Indonesia. I think it’s really positive that the Indonesian government is doing something [for which] there’s no precedent, especially in Southeast Asia.”
As of May, tax rules for cryptocurrencies were still being discussed, according to a Reuters report citing Neilmaldrin Noor, a spokesman for Indonesia’s tax office, and no decisions have yet been made.
However, former Director General of Taxes Abdul Anshari Ritonga recently told a legislative commission that cryptos were not “basic commodities” because people often used them in fairly large transactions, meaning that they “must be subject to value-added tax.”
Although developments may be slow in coming, there is some activity behind the scenes. Discussion between the government, organizations and businesses are ongoing, and policymakers are taking steps to understand the sector, potentially laying the groundwork for regulation.
Asih Karnengsih, chairwoman of the Indonesia Blockchain Association said: “[The government] is really eager to have a blockchain project in their department. For now they are at the stage of exploring and examining the potential and their resources.”
She said the association had held “a lot of focus group discussions with [the authorities], regarding how [they] can use blockchain technology in Indonesia, such as health records, supply chains and so on.”
More institutional cross-sector conversations are also in the works. Karnengsih said: “We are planning to have a blockchain council, which consists of the regulators and the association and also some industry players to keep track of blockchain projects.”
Religion and regulation
In the world’s most populous Muslim majority country, religion adds another layer of complexity. Some 86 percent of Indonesians are Muslims, making Sharia-compliance and Islamic principles important issues in their potential mass adoption — issues upon which the country’s Ulema Council will weigh in.
Compliance with money laundering and terrorism financing rules are additional issues that the government will need to address, and Evita Nursanty, a lawmaker from the ruling Indonesian Democratic Party of Struggle is urging the drafting of appropriate laws, according to local media reports.
Jakarta will also have to tackle a lack of coordination across departments with respect to licensing of new companies. Any domestic or foreign investor seeking to establish a company in Indonesia must verify whether its activities fall within the categories named in a list known as the KBLI. Although the country’s statistics department issued KBLI 2020 to replace the previous KBLI, issued in 2017, in an effort to keep up with the emergence of new industries such as blockchain, other systems that form part of the corporate licensing process have not been updated.
Karnengsih said: “New companies, local [and] foreign, are … observing the maturity of the industry and certainty in terms of regulation. So far, we are inspiring the government to perhaps come up with a statement besides their supporting actions that explicitly welcomes blockchain technology, which will attract investors.”
Suhadi said that after the Ministry of Trade legalized crypto asset trading in 2018, he saw more investment flowing into the industry.
“Before the regulation came out, there were only around three exchanges operating in Indonesia. And now, there are around 14 registered exchanges.”
He said that more companies were applying for licenses.
Deputy trade minister Sambuaga said many investors from China, Taiwan, South Korea and the U.S. had already expressed interest in investing in Indonesia’s crypto sector, but that although Indonesia welcomed such companies, they had to comply with local regulations.
Suhadi said many drivers of growth for crypto assets existed in Indonesia.
“The nation’s predominantly a young country in terms of average age, [people] who are more used to seeing digital assets and digital types of businesses,” he said.
Indonesia has a population of more than 270 million, 70 percent of whom are in the productive age group of 15-64. The main contributors to the rapid growth of the country’s crypto market have been young people, with around 90% of crypto transactions carried out by those aged 20-30, according to official statistics.
The rise of digital wallets such as OVO and GoPay in Indonesia is clear evidence that the penetration of digital payment methods is increasing, Suhadi said, adding: “The future is bright for cryptocurrencies, but not as a form of payment.”