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With Singapore as a reference, Indonesia holds promise for cryptocurrencies

Written by Khamila Mulia Published on 

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Indonesia now has a legal digital currency exchange for crypto traders.

Jeth Soetoyo worked part-time at an American blockchain incubation lab, Consensys, when he was pursuing a master’s degree in business administration at Harvard Business School in 2017. It wasn’t long before cryptocurrencies and their development became a subject of intense interest for Soetoyo—and a path to forming his own business.

Like other crypto evangelists, Soetoyo believes that global finance will be rebuilt on the top of the blockchain in an open and decentralized way. To play his part, Soetoyo started a crypto trading and investment platform called Pintu in 2019. “We have seen some major progress in terms of Bitcoin adoption in Indonesia recently, whereby big corporates, institutional investors, or even major banks are starting to look into it as a new product offering,” Soetoyo told KrASIA.

Bitcoin had a bumpy start in Indonesia. It is still banned by Bank Indonesia as a form of payment, and the trading of bitcoin and crypto assets as commodities was only legalized in February 2019. Nonetheless, cryptocurrencies are starting to gain traction in the country, especially this year, with more people keeping an open mind for new investment options.

There are thousands of types of cryptocurrencies. The most popular in Indonesia are Bitcoin, Ethereum, Ripple, and Tether, according to Pintu’s internal research.

It is not clear exactly how many people hold those coins in Indonesia, but 11% of internet users in Indonesia own some form of crypto, according to a report published by global social media marketing firm We Are Social and HootSuite in January.

Aside from Pintu, a few other startups have obtained licenses from Indonesia’s Commodity Futures Trading Regulatory Agency (Bappebti) to operate crypto trading platforms, like Indodax and TokoCrypto. Investment startup Pluang also started offering Bitcoin and Ethereum investment options on its platform recently.

“Crypto is a very popular investment today as there are more crypto users than stock market users in Indonesia. It is becoming more mainstream and accepted by governments around the world. Here, Bappebti works closely with fintech players to figure out how best to regulate the space,” Pluang CEO Claudia Kolonas told KrASIA.

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Even so, crypto firms face various challenges in the country. Kolonas believes that security is still an issue for safe crypto trading and investment. Since crypto hacks are rife, the best exchanges use advanced custody solutions—storage and security systems—to keep track of large quantities of tokens, Kolonas said.

Although cryptocurrencies are attracting attention from investors, there are still many people who aren’t convinced that the transaction protocol is massively adoptable at a consumer level. For the general public, cryptocurrencies aren’t so much assets as they are a vessel for speculation where only technically inclined individuals get involved.

“Blockchain and crypto contain a lot of technical terms that are sometimes too hard to understand. We also found that people still have a problem finding simple, reliable, and easy-to-use apps to store and trade their cryptocurrency safely,” he said. That is why market education from industry players and regulators is crucial for cryptocurrencies to become a massively adoptable asset.

The value of a cryptocurrency can be extremely volatile. Take bitcoin’s value in 2020 as an example: it has surged to an all-time high, with each bitcoin worth nearly USD 24,000 as of December 23, according to Trading View.

Bitcoin prices fluctuate wildly, seemingly with no rhyme or reason. In 2020 alone, its value went from USD 7,000 in early January to USD 10,000 in mid-February, only to drop by 50% in March. The price ticked up to reach USD 12,000 in August, and then plunged sharply the next month. Bitcoin’s price picked up steam soon after, and hit a new peak in December.

Screencap of bitcoin price chart throughout 2020 from TradingView.

Soetoyo believes this year’s increase is different from previous cycles of peaks and valleys. In the past, bitcoin became valuable as a result of speculative actions performed by retail investors; now, some institutional investors like financial company Square, Inc. and business intelligence company MicroStrategy treat bitcoin as an asset class within their clients’ portfolios, driving demand for the digital currency like never before.

“Unlike investing in traditional currencies, bitcoin is not issued by a central bank or backed by a government, therefore the monetary policy, inflation rates, and economic growth measurements that typically influence the value of currency do not apply to bitcoin,” said Soetoyo. Rather, bitcoin prices are influenced by factors such as market demand, the cost of producing a bitcoin through mining, and internal governance, he said.

Lessons from Singapore

The Asia Pacific region has been a testing ground for cryptocurrency adoption, especially in China, Japan, and South Korea, which are home to early adopters of blockchain technologies. Now, Singapore has caught up with those trailblazers.

The Southeast Asian city-state has advanced blockchain development, as the government has offered clarity about owning and trading digital assets and cryptocurrencies, according to the Singapore Blockchain Ecosystem Report 2020 co-written by OpenNodes, Temasek, IBM, PwC Singapore, EY, and SGTech. In mid-December, Singapore’s DBS rolled out digital exchanges, which are touted as a first for trading fiat money and cryptocurrencies with the backing from a conventional bank in Singapore. Indonesia seems to be far behind Singapore, but industry players believe the country can catch up with the city-state’s development.

Indonesia now has a legal digital currency exchange, the Digital Future Exchange (DFX), as the result of partnership between licensed crypto asset traders including Pintu, Upbit, Indodax, and Zipmex. DFX collaborated with the Indonesian Blockchain Association (ABI) recently to introduce the Indonesian Crypto Asset Exchange Monitoring System, which helps crypto traders monitor price movements and analyze the industry’s development.

Since DFX has obtained information security certifications and is licensed by the official regulator, consumers can trade or perform transactions safely on the exchange. Consumers can also avoid rug-pulls, which are a type of exit scam, the chairman of Indonesian blockchain association Oham Dunggio told KrASIA in a written statement.

“We believe that DFX will not only help Pintu and other startups to flourish in the Indonesia market, but it will also help our crypto ecosystem as a whole to build a trustworthy, reliable, and best-practice standard to shape Indonesia’s cryptocurrency foundation,” said Soetoyo.

Next year, industry players believe there will be broader adoption of cryptocurrencies in the country, and more people will become familiar with this asset through local crypto startups and multinational companies that increasingly make crypto part of their product rotation. “We believe that public awareness about crypto will continue to grow, thanks to the government’s support. Many global institutional investors are shifting to bitcoin, including PayPal that now offers cryptocurrencies. During this pandemic, investors want to diversify their investment portfolios, and many are eyeing cryptocurrencies,” said Soetoyo.

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