All Tesla CEO Elon Musk did was change his twitter biography to one word: “#bitcoin” and the price of Bitcoin rose nearly 20% in a matter of hours. It skyrocketed from around $32,000 to nearly $38,000. Volatility of it aside, if one had bought 10 USD worth of Bitcoin back in 2010, its value would be 7,474,864.65 USD today. [the figures are merely estimates and were calculated via a bitcoin price return calculator] What in the world is ‘Bitcoin’, and why are some people investing their life savings in something Elon Musk’s twitter page can affect in mere minutes?

Bitcoin was launched in 2009 by a man named Satoshi Nakamoto – the pseudonym for the creator or creators who remain(s) unknown – and is widely regarded as the first cryptocurrency. It’s a decentralised form of digital cash that dispenses with the requirement for traditional intermediaries like banks and governments to make financial transactions. In essence, Bitcoin gives users complete control over it while allowing for easier and faster transactions to be done anywhere in the world with minimal to no fees, while maintaining anonymity.

In Malaysia, digital currency such as Bitcoin are not recognised as legal tender. However, this does not mean that it is ‘illegal’ per se. Digital currency was officially recognised by the Malaysian Courts as a security and commodity in the 2018 High Court case of Luno Pte Ltd & Another v Robert Ong Thien Cheng. There, the Court held that digital currency falls within the ambit of “anything” under Section 73 of the Contracts Act 1950 (“CA 1950”) as it is a form of commodity (albeit in intangible form) with an attached value, the same way value is attached to shares.

The Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 was introduced to provide guidance as to how and when “digital currency” and “digital tokens” (collectively known as “digital assets”) are recognised as securities for the purposes of Malaysia’s securities laws. This effectively widens the scope of “securities” under the Capital Markets and Services Act 2007 (“CMSA”) with the regulation of the Order naturally falling under the purview of the Securities Commission Malaysia (“SC”).

In line with the Order, the SC had subsequently amended the “Guidelines on Recognised Markets” to set out the requirements and framework for digital asset platform operators on the Digital Asset Exchange (“DAX”) i.e., the electronic platform which facilitates the trading of digital assets. These Guidelines require DAX operators to be registered as a Recognised Market Operator (“RMO”) under Section 34 of the CMSA and the said Guidelines.

Currently, Malaysia only has 3 registered and approved DAX operators – Luno Malaysia Sdn Bhd, SINEGY Technologies (M) Sdn Bhd and Tokenize Technology Sdn Bhd. There are 5 available digital assets to be traded on those platforms at the moment, namely Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC) and Bitcoin Cash (BCH). The list of Registered Digital Asset Exchanges can be found here.

It is timely to note that pursuant to Section 7 of the CMSA, members of the public are not permitted to offer, issue, or distribute any digital assets in Malaysia without obtaining registration from the SC. Those doing so may be liable, and if convicted, be fined up to ten million ringgit or face imprisonment for a term not exceeding ten years or both.

With the significant surge of interest in digital assets in Malaysia in the recent years, the SC had revised its ”Guidelines on Digital Assets to include the regulation of Initial Exchange Offerings (“IEO”) and Digital Asset Custodians (“DAC”). In essence, all offerings of digital tokens shall be undertaken via a registered IEO platform. The revised Guidelines also outline the framework and requirements to be met by an applicant to be registered as an IEO platform operator.

In brief, IEO platform operators will play a role akin to investment banks, in that they will act as the adviser for companies that wish to raise up to RM100 million (in 12 months) through the issuance of digital tokens. This includes reviewing their proposals, assessing their ability to comply with the Guidelines and conducting due diligence on the potential issuers as well as the features of the digital tokens. The Guidelines were also revised to regulate a DAC; being any person who “provides the services of safekeeping, storing, holding or maintaining custody of digital assets for the account of another person.”

In addition to the above, Bank Negara Malaysia has imposed a requirement on digital asset exchanges in Malaysia to register themselves as a reporting institution pursuant to the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001. This can be found in its “Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Digital Currencies (Sector 6)” policy.

Digital assets such as Bitcoin have unique characteristics and a freewheeling nature. It was built with the purpose of being decentralised. With that, it is difficult for it to have a single controlling regulatory entity. Despite this, the SC’s regulatory efforts in Malaysia are welcomed by the digital asset trading platforms, who are of the opinion that regulation will ultimately bring clarity and protection to customers and ensure that all cryptocurrency businesses have adequate standards in place to protect investors and their funds.

Written by: Catherine Loi ([email protected]).
Catherine is currently a pupil-in-chambers with Messrs Chong + Kheng Hoe and will join our Corporate Department upon her admission to the Bar in the near future.

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