BNM warns on bitcoin risks

by **Cals** Mon 06 Jan 2014, 14:45

Business & Markets 2013

Written by Madiha Fuad & Emily Chow of theedgemalaysia.com

Monday, 06 January 2014 10:34

KUALA LUMPUR: Amid global scrutiny of virtual currency bitcoin, Bank Negara Malaysia (BNM) has advised the public to be cautious of its usage.

“The bitcoin is not recognised as legal tender in Malaysia,” the central bank said in a statement last Friday.

BNM added that it does not regulate the operations of bitcoin.

“The public is therefore advised to be cautious of the risks associated with the usage of such digital currency,” it said in a statement.

Bitcoin has been garnering further attention internationally of late, following its recent ban in China, which caused a sharp tumble in its value to 2,752 yuan from 3,755 yuan on Dec 18.

The Chinese central bank’s ban on bitcoin trading is limited to financial institutions. While individuals are not banned from engaging in bitcoin activity, third-party payment services in China have also been banned from handling its transactions, rendering new purchases of the virtual currency impossible.

As a result, Chinese bitcoin exchange platform BTC China, the world’s largest bitcoin exchange by volume, stopped accepting Chinese yuan deposits the following day, although it still processes withdrawals. Its Chinese counterpart, OKCoin, also ceased taking yuan deposits.

In July 2013, the Central Bank of Thailand was the first country to place an outright ban on all bitcoin activity after the Thai trading platform, Bitcoin Co Ltd applied for a licensing permit. It has since shifted its operations to bitcoin mining.

More recently, India’s biggest bitcoin trading platform, BuySellBitCo, has suspended operations following a circular issued by the Reserve Bank of India, cautioning users against the risks of the digital currency. Following the shutdown, the home of the trading platform’s operator was raided by local authorities on the basis of regulatory violations.

Worldwide, bitcoin commands the largest trading volume in yuan at 47%, based on a report by the National Australia Bank. This is followed by the US dollar at 45%, and 4% in euros.

While bitcoin isn’t the first virtual currency (Litecoin came into existence in October 2011, and Peercoin took off in August 2012), it is the first to garner mainstream attention, alerting central banks around the world.

Colbert Low, a bitcoin pioneer in Malaysia, said bitcoin provides various opportunities for its users.

“It is quite sad if BNM is of this view. If this is the stance in Malaysia, then it will be tough for bitcoin users here,” he told The Edge Financial Daily.

He added that this would be a similar approach that India and China have taken on the virtual currency, which have typically barred financial institutions from handling bitcoin transactions.

“We can see that other countries have a different view on bitcoin. Singapore does not regulate the digital currency, but it considers it a virtual token,” he said.

Low expects offshore transactions to flow into Singapore, potentially making it the next bitcoin financial hub.

“As bitcoin is not seen as legal tender here, this would move businesses to Hong Kong and Singapore and result in an outflow of technology as well as bitcoin as companies are set up offshore,” he said.

This is seen to have an affect on bitcoin users in Malaysia and possibly dampen domestic usage.

Low, who currently runs the website bitcoinsmalaysia.com to promote the usage of bitcoin in Malaysia, foresees changes in 2014.

“I expect the bitcoin market in this region to change within the next six to 12 months as many companies are waiting for guidelines from the International Monetary Fund and the World Bank,” he said.

He reasoned that currently some European countries such as Germany view bitcoin as a private tender while others have created guidelines to monitor transactions.

“Currently, there is an increasing number of bitcoin miners in Malaysia and there is a high demand for bitcoin mining hardware,” he said, adding that many users ship the hardware into Malaysia.

The bitcoin hardware, costing about RM25,000, is used to ensure that bitcoin transactions are authentic.

The digital currency first emerged in Malaysia in 2012, and now has some 200 to 300 users.

Currently, only two merchants in Malaysia have started accepting bitcoin as payment, VPN (virtual private network) service provider BolehVPN and Nook Malaysia, a co-working office rental space in Bangsar.

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Low: As bitcoin is not seen as legal tender here, this would move businesses to Hong Kong and Singapore.

Nook’s founder, Daniel Yap, started accepting bitcoin as payment in November due to his interest in the currency.

“As co-working space, we get a lot of tech guys here. We talked a lot about bitcoin and how it could be used as a form of payment. After tracking it for the past few months, I thought why not?” he said.
“If people are willing to pay with bitcoin, I should be willing to accept it, and I take the risk as the proprietor. It’s the same as accepting any other currency in the world, be it euro or US dollar. You have to accept the value of it on the [transaction] day.”

Even as bitcoin is viewed with scepticism in some parts of the world, its usage is spreading.

Recently, Asia’s richest man Li Ka-shing is said to have endorsed bitcoin by investing in Bitpay, a US-based start-up aiming to become the currency’s largest payment service provider.

Li reportedly invested in BitPay through his venture capital company, Horizon Ventures, which previously invested in Facebook and Skype.

As the PayPal for virtual currencies, BitPay has processed over US$100 million (RM329 million) in transactions since its beginnings in May 2011. It handles payments for 15,000 companies and businesses across 200 countries.

This article first appeared in The Edge Financial Daily, on January 06, 2014.