Crypto regulation in Malaysia

In Malaysia, cryptocurrencies have gained significant traction among citizens, with a growing interest in digital assets as an investment opportunity. However, the authorities have maintained a cautious stance, warning the public about the risks associated with cryptocurrencies.

The cryptocurrency market in Malaysia has been steadily developing, with a notable increase in trading volumes and the number of investors participating in the space. Many Malaysians view cryptocurrencies as a lucrative investment opportunity. The potential for high returns, particularly during bullish market trends, attracts a diverse range of investors. Bitcoin remains the most popular cryptocurrency among Malaysian holders, followed by Ethereum, indicating a preference for established digital assets. Despite a recent drop in overall adoption to 15% of internet users, the allure of potential profits continues to draw interest.

Malaysia is positioning itself as a crypto-friendly destination, with the government recognizing the potential of blockchain to drive economic growth. Digital Minister Gobind Singh Deo noted that the country has become one of the top ten crypto-friendly locations, thanks to its competitive talent pool and the growing number of companies leveraging blockchain technology. This environment encourages innovation and attracts both local and international players to the market.

Regulation

The establishment of a regulatory framework for cryptocurrencies has provided a sense of legitimacy to the market. The Malaysian Securities Commission has introduced guidelines for digital asset exchanges, ensuring that trading occurs in a safe and compliant environment. This regulatory clarity helps to alleviate concerns about fraud and market manipulation, making cryptocurrencies more appealing to cautious investors.

Cryptocurrency is not considered legal tender in Malaysia. The country's central bank, Bank Negara Malaysia, has explicitly stated that cryptocurrencies like Bitcoin are not recognized as legal tender in the country. Malaysia classifies cryptocurrencies as securities under the Capital Markets and Services Order 2019. This order outlines when digital currencies and tokens are considered securities and fall under the regulatory purview of the Securities Commission Malaysia.

Same as in a majority of Asian states, such as Philippines or Indonesia, cryptocurrencies are legal in Malaysia, but they are not recognized as a form of payment. In 2022, Malaysia's Finance Minister stated that digital assets such as Bitcoin and Ethereum are not suitable to be used as a payment instrument.

Capital Markets and Services Order 2019 classifies digital assets into two categories - digital currencies and digital tokens - and outlines when they are considered securities. The Securities Commission Malaysia is the primary regulatory body overseeing digital asset service providers in the country. Companies wishing to operate in Malaysia and provide services with assets qualified as securities must register with the SCM.

The authorities have plans to further develop cryptocurrency regulation in Malaysia, focusing on enhancing technical and policy capabilities to ensure effective oversight of the industry.

Virtual asset service providers (VASPs)

To buy and sell cryptocurrency in Malaysia, users can utilize registered digital asset exchanges or peer-to-peer platforms. The four registered digital asset exchanges currently operating in Malaysia are Luno, MX Global, SINEGY and Tokenize.

International platforms like Binance and HTX are also popular among Malaysian investors, although their operations in the country have faced regulatory challenges.

Malaysia has implemented a comprehensive regulatory framework to combat money laundering and terrorist financing in the cryptocurrency exchange sector. In February 2018, Bank Negara Malaysia (BNM) issued the AML/CFT Policy on Digital Currencies to outline the requirements and standards for digital currency exchangers operating in Malaysia. Also, digital currency exchangers are defined as «reporting institutions» under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA). Requirements include conducting risk assessments, implementing customer due diligence, and reporting suspicious transactions.

Mining

Malaysia does not have specific laws prohibiting cryptocurrency mining. However, the authorities have raised concerns about the high energy consumption associated with mining activities. Mining is not as popular in Malaysia compared to other countries, and the authorities have not actively fought against mining operations. There are no clear plans from the authorities to develop or regulate cryptocurrency mining in Malaysia at this time.

Taxation

Malaysia currently treats cryptocurrencies as assets for tax purposes. Capital gains from the disposal of cryptocurrencies are subject to income tax, while goods and services tax (GST) may apply to certain cryptocurrency transactions. The tax authorities have provided guidance on the tax treatment of cryptocurrencies, but the overall tax framework remains evolving as the industry develops.

Businesses or individuals who buy and sell digital currencies regularly as part of their business operations to obtain profit are taxed on the profit derived from trading. Expenses incurred during trading can be deducted, and losses can be set off against income.

The central bank of Malaysia maintains a cautious approach towards cryptocurrencies, emphasizing that they are not suitable as legal tender due to their volatility and associated risks. BNM's focus remains on ensuring that the existing monetary and financial policy tools effectively safeguard stability. Also, Bank Negara has also exploring the potential of a Malaysian CBDC. In 2021, the bank collaborated with counterparts in Australia, Singapore, and South Africa to test the efficiency of a CBDC, focusing on proof-of-concept and experimentation to enhance technical and policy capabilities.

Malaysia is developing a CBDC framework through structured phases, primarily focusing on enhancing payment systems and addressing cross-border transaction inefficiencies. However, the central bank distinguishes between CBDCs and cryptocurrencies, treating them separately in terms of regulation and implementation. The exploration of CBDCs is seen as a way to improve the financial system while mitigating the risks associated with privately issued digital assets.