Vietnam Retail Investors Embrace Digital Assets with 1 in 5 Owning Cryptocurrencyby Rebecca Oi February 8, 2023
Vietnam is making waves in the cryptocurrency world as it has become one of the largest markets for digital currencies. With a population of 99.607 million, the country is the 13th largest by population.
In ASEAN, Vietnam is second only to Thailand in cryptocurrency market size, with a yearly transaction value exceeding $100 million.
These statistics are further boosted by the fact that a recent study found that one in five people in Vietnam own cryptocurrencies. This firmly establishes the country as the cryptocurrency capital of the world.
Directive prohibiting the use of cryptocurrencies
In 2017, the government issued a directive prohibiting the use of cryptocurrencies for payments in the country. This effectively made it illegal for businesses to accept cryptocurrencies as a form of payment for goods and services.
However, individuals can still buy, sell, and hold cryptocurrencies for investment purposes. The government has regulated the cryptocurrency market to mitigate potential risks and ensure financial stability.
In March 2020, the Vietnamese Ministry of Finance announced that it would set up a committee to study and propose policies for managing virtual assets and cryptocurrencies.
The growing popularity of cryptocurrencies in Vietnam
The high rate of cryptocurrency adoption in Vietnam can be attributed to several factors, one of which is the absence of crypto taxes. Unlike in the United States and other major jurisdictions where cryptocurrency holdings are taxed, there are no such taxes in Vietnam.
This has made cryptocurrency an attractive investment option for individuals looking to diversify their portfolios and potentially earn high returns without paying additional taxes.
The Vietnamese government’s stance has also played a role in the growth of the cryptocurrency market. While the central bank has warned about the risks of cryptocurrencies, it has not taken any steps to ban or restrict their use.
This has created favourable environment for investors, as they take advantage of the lack of regulation to invest in a wide range of cryptocurrencies.
Another reason for the growth is the country’s young and tech-savvy population, over half under 35 years old. These young Vietnamese are attracted by the possibilities of cryptocurrencies and eager to invest. This has led to a thriving cryptocurrency culture, with Hanoi at the center of everything.
By 2030, Vietnam is predicted to have a middle-class population of 50 percent, placing it among the top 20 economies.
Another factor contributing to the growth of cryptocurrencies in Vietnam is the country’s economy. Despite being one of the fastest-growing economies in Southeast Asia, Vietnam still faces significant economic challenges.
For many people, cryptocurrencies provide an alternative to traditional banking systems and offer a more secure way to store their wealth. This is particularly true for those who are skeptical of the stability of the Vietnamese Dong, which has been subject to devaluation in recent years.
Dwindling faith in the Vietnamese Dong
Throughout history, Vietnamese citizens have relied on foreign currencies, such as the US dollar, during economic turmoil and hyperinflation. In recent years, they have also accumulated assets such as gold to guard against inflation. As a result, the country has seen a buildup of as much as 400 tonnes of gold.
However, with the rise of cryptocurrencies, more Vietnamese citizens have been using digital currencies as a hedge against inflation instead of tangible assets like gold.
Despite warnings from the central bank about the volatile nature of virtual currencies, a lack of faith in the Vietnamese Dong has driven many Vietnamese investors to turn to cryptocurrencies.
Statista data shows that Bitcoin is often used as a hedge against inflation and is currently the most popular cryptocurrency in the country.
According to a 2022 Global Crypto Adoption Index, Vietnam has also ranked second in peer-to-peer exchange trade volume due to its citizens’ “get-rich-quick” and gambling mentality towards cryptocurrency and the absence of a regulatory framework.
Despite its growing popularity, extensive regulations for their use and trade appear to be a long way to go. The Vietnamese government has yet to embrace digital currencies fully and has been cautious in its approach.
While some preliminary steps have been taken to regulate their use, such as issuing warnings against illegal activities, a comprehensive legal framework has yet to be developed.
This has resulted in a number of challenges. Firstly, there is a lack of investor protection, which leaves individuals vulnerable to scams. Secondly, tracing crypto-related fraudulent and criminal activities such as money laundering is difficult. The business environment in the crypto sector is also volatile, making it challenging for investors to make informed decisions. Additionally, the tax authority is unable to collect taxes from crypto-related activities, further adding to the lack of regulatory oversight.
For Vietnam to establish itself as a hub for cryptocurrency, it is imperative that it takes steps to create a clear regulatory framework and attract top cryptocurrency companies.