Factors driving growth in Southeast Asia

Southeast Asian country Vietnam is now one of the top countries for cryptocurrency adoption.Indeed, the country has ranking Ranked #1 in Chainalysis’s Global Cryptocurrency Adoption Index for the second year in a row.

Chainalysis’ research methodology considers population-adjusted adoption rates from centralized exchanges to cryptocurrency platforms. Peer-to-peer (P2P) payment network. Web traffic from major encrypted networks was analyzed to identify countries with the highest percentages of interest and adoption.

That said, Vietnam’s high adoption rate is a puzzling phenomenon that raises the question: why is crypto adoption so high in the country?

No cryptocurrency tax

There are many reasons why Vietnam’s cryptocurrency adoption rate is so high, one of which is that, unlike the United States and other major jurisdictions that tax cryptocurrency assets, Vietnam has no cryptocurrency tax.

Currently, the Vietnamese government Doesn’t even recognize cryptocurrencies as legal tender. Although national tax authorities have shown interest in taxing cryptocurrencies, they lack the mandate to designate them as taxable assets. As such, Vietnamese law is largely silent when it comes to crypto taxation.

As a result, financial institutions in the country are prohibited from handling them. However, Vietnamese citizens are allowed to own and trade cryptocurrencies.

The lack of crypto taxes makes digital currencies an ideal investment vehicle, so adoption has risen. The trade-off is that Vietnamese law does not protect crypto users in the event of fraud or loss. Therefore, cryptocurrencies cannot be legally used in trade relations.

However, the country’s financial regulator is working to develop detailed guidelines for the use of cryptocurrencies.This follows the directive issued by Prime Minister Pham Minchin in July 2021. Ask the State Bank of Vietnam Explore the pros and cons of digital currencies to draft regulations. The agency is likely to propose a range of measures, including taxation and user protection guidelines.

Cointelegraph had the opportunity to chat with Gracy Chen, managing director of Bitget cryptocurrency exchange, about the regulatory environment and developments in Vietnam.

Chen stated that clear and strong regulations that would allow institutional inventors in the country to start trading in cryptocurrencies would be a huge win for the industry:

“When regulation does come in, it may have a short-term impact on local fiat exchange trading, but in the long term clear regulation may encourage wider adoption and set the stage for increased retail and institutional participation as regulation A better market will provide greater protection and increase investor trust. So overall, the pros outweigh the cons.”

Vietnam has a large unbanked population

Many Vietnamese have limited access to standard financial services.The country ranks according to the 2021 study conducted by Statista second One of the top 10 unbanked countries. The report highlights that about 69% of citizens do not have access to typical banking services.

World Bank estimates show More than 61% of the country’s population lives in rural areas, where access to modern banking services is limited. Cryptocurrency networks are rapidly filling this void.Novel and revolutionary blockchain concepts such as Decentralized Finance (DeFi) It has also gained attention among Vietnamese crypto investors looking to obtain credit for crypto investment purposes.

DeFi is a hypernym for blockchain-based financial networks that provide services similar to those offered by banks. DeFi platforms allow users to earn interest on their money, borrow funds, and trade crypto derivatives. They also enable investors to use DeFi insurance to protect their assets and require no paperwork. This makes them convenient for unbanked Vietnamese, especially those looking to expand their crypto investments and earn passive income.

Notably, Vietnam ranks second among the countries with the highest DeFi usage in the world, according to The Chainalysis Global DeFi Adoption Index Report to 2021.

money transfer

Vietnamese nationals living overseas in 2021 send Remittances surpassed $18 billion, a new record, making the country the eighth-largest recipient of remittances in the world. This was a 3% increase from $17.2 billion in 2020.

For Vietnamese who often send money to family members in Vietnam, transfer fees tend to be high. Surcharges usually include administration fees and exchange rates. according to According to the World Bank, as of 2020, the average cost of remittances in Vietnam is around 7%.

High fees, coupled with the lack of access to remittance services for the unbanked population, make cryptocurrency transfers an attractive option for Vietnamese living abroad to help support their families at home.

While blockchains do have transaction fees, they tend to be dwarfed by remittance networks and are P2P, not relying on middlemen to complete transactions.

GameFi is gaining popularity

Blockchain games with economic incentives, commonly known as GameFi, Use an innovative economic model to allow users to earn rewards for playing games. Rewards usually come in the form of non-fungible tokens (NFTs) and cryptocurrencies.

Since cryptocurrencies are at the heart of the GameFi environment, many gamers understand how they work as part of their gameplay, providing another path to adoption.

according to In Chainplay’s August State of GameFi 2022 survey, 75% of GameFi crypto investors said they started investing in digital currencies after joining the GameFi platform.

GameFi, especially game-to-money (P2E) games, is very popular in Vietnam and has contributed greatly to the adoption of cryptocurrencies in the country.

According to a 2021 research report post According to data aggregation service Finder, Vietnam ranks sixth among countries with the highest percentage of P2E gamers. According to the survey report, 23% of Vietnamese participants said they had played P2E games.

Today, due to the prevalence of NFT gaming culture, many GameFi startups have set up shop in the country, which in turn has propelled cryptocurrency adoption. Developers include Ancient8, Sipher and Summoners Arena.

Notably, Axie Infinity is one of the most popular games in the world, with its roots in Vietnam.

According to Chen, the relationship between GameFi and crypto adoption is part of the reason why both industries are booming:

“Vietnam ranks first in Southeast Asia for producing apps and games on stores such as the Apple Store and Google Play, according to data from Google, Sensor Tower and Data.ai. Meanwhile, last year’s new massive crypto adoption around the world was partly due to GameFi . These two factors are closely related, leading to the mass adoption of cryptocurrencies in Vietnam.”

Cryptocurrencies as a hedge against inflation

Vietnamese citizens throughout history, preferred Use of other national currencies, such as the US dollar, during times of economic turmoil and hyperinflation. In recent years, Vietnamese people have also been accumulating assets such as gold as a hedge against inflation.

At some point in the past decade, Vietnamese citizens held as much as 400 tons of gold.

Of course, the advent of cryptocurrencies has also led to more Vietnamese citizens using them as a hedge against inflation, rather than tangible assets like gold.

While the Central Bank of Vietnam has warned individuals and institutions not to trade virtual currencies because of their caprices, declining confidence in the Vietnamese dong has led to more Vietnamese investors turning to digital currencies. according to Data from Statista, Bitcoin (bitcoin), widely used by investors as a hedge against inflation, is currently the most popular cryptocurrency in the country.

The report shows that the country’s search interest in major cryptocurrencies is around 84.5% relative to other cryptocurrencies.

Vietnam will continue to adopt cryptocurrencies as more and more Vietnamese discover the convenience and possibilities of digital assets. However, broad regulation appears to be a long way off. The State Bank of Vietnam has until 2023 to study the pros and cons of cryptocurrencies and make policy recommendations.