Crypto: Boon or bane?

PETALING JAYA: Research consulting services firm Oppotus Research Group Sdn Bhd has revealed that 36% of Malaysians owned cryptocurrencies as of the fourth quarter of 2022. The figure was 20% in the same period in 2021.

The Securities Commission Malaysia also reported a substantial adoption of cryptocurrency in 2021, with some RM21 billion in digital assets such as Bitcoin and Ethereum, tokens, domain names and digital art traded in the country.

Given this scenario, an academic has expressed “concern” over the growing popularity of cryptocurrencies in the country, warning that it could hinder Bank Negara Malaysia’s (BNM) ability to regulate the supply of money.

Universiti Teknologi Mara senior economics lecturer Dr Mohamad Idham Md Razak said the challenge for BNM arises from the decentralised nature of cryptocurrencies.

“They operate outside the regulatory framework applied to traditional fiat currencies such as the ringgit, US dollar and British pound.”

Fiat currencies are not backed by physical commodities such as gold or silver, but by the governments that issued them.

“Consequently, central banks have less authority over the creation and circulation of cryptocurrencies,” he said.

Mohamad Idham said the inherent volatility of cryptocurrencies can introduce instability into the financial system, making it more unpredictable.

He said the volatility in cryptocurrency prices could lead to financial turbulence, making it challenging for businesses to plan and invest effectively.

Additionally, he said BNM’s ability to control inflation may be threatened by the growing use of cryptocurrencies.

“Unlike conventional fiat currencies, cryptocurrencies do not adhere to the same monetary policy tools. This potentially limits BNM’s control over inflation rates.

“These reasons imply that cryptocurrencies might not assist efficient monetary policy and inflation management,” he said.

Mohamad Idham emphasised that given these multifaceted risks and challenges, it is paramount for individuals and businesses to stay well informed when dealing with cryptocurrencies.

He added that policymakers and regulators should actively engage in addressing these challenges, recognising the evolving nature of the cryptocurrency landscape.

“Although BNM is still working on it, creating a thorough and reliable regulatory framework is a difficult task that could take a long time.

“It requires careful consideration of the unique characteristics and potential impact of cryptocurrencies as well as the development of policies that strike a balance between fostering innovation and ensuring financial stability and consumer protection,” he said.

However, Sunway University economics professor Dr Yeah Kim Leng believes cryptocurrencies can serve as a check against detrimental government policies and mismanagement that lead to inflation and currency crises, offering potential economic benefits.

“In such situations, people often turn to alternative assets or mediums of exchange. Hence, cryptocurrencies offer a viable option.

“Cryptocurrencies have been associated with issues like ‘dark money’ and money laundering, but they have also developed as alternative currencies when facing economic sanctions or hyperinflation.

“Being decentralised and resistant to traditional financial constraints, cryptocurrencies can offer stability and accessibility, making them a valuable financial tool in times of economic turmoil,” he said.

Yeah stressed that it is crucial to acknowledge that cryptocurrencies remain highly volatile.

Therefore, any action taken by individuals comes with inherent risks, with limited assurance of recovering funds in case of unforeseen complications.

Cryptocurrency investor Ong Poh Chean said he finds cryptocurrencies appealing as they offer a relatively accessible learning curve for those who are dedicated and willing to commit.

“Considering that no investment is completely risk-free, it is crucial to evaluate and manage this while making cryptocurrency investments.

“One way to mitigate the risks is by conducting thorough research, staying informed about the latest news and developments in the cryptocurrency space, and carefully evaluating the parties involved in various projects.

“These pre-emptive steps can greatly lower potential drawbacks and improve decision making, while the inherent risk still exists,” he said.

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