Crypto Law In Malaysia

• Published date: 07 November 2022
• Law Firm: Kevin Wu & Associates
• Author: Tan Zu Hao

In 2021, the trading value of the digital asset and cryptocurrencies market in Malaysia rose to RM21bil in 2021 based on the Annual Report 2021 released by the Securities Commission.¹

With increasing interest in alternative assets, what is the legal position on cryptocurrency in Malaysia?

To give a better understanding of the laws involved, it is perhaps apposite to delve into the technology behind cryptocurrency. Cryptocurrency is essentially a medium of exchange, created and stored electronically in the blockchain. In other words, blockchain is what enables the existence of cryptocurrency, such as Bitcoin. What then is blockchain? Blockchain technology basically uses encryption techniques to control the creation of monetary units and to verify the transfer of funds without any central clearing authority.

As for non-fungible token (NFT), it is similar to cryptocurrency but the difference lies in the fact that the latter is fungible and interchangeable (i.e. one Bitcoin has the same value as another one Bitcoin). NFTs are unique and non-interchangeable in that sense while also using the blockchain technology to provide verifiable proof of ownership of the item the NFT is associated with. Besides, unlike a cryptocurrency, NFTs are sold but not traded like securities on digital exchanges.

Not illegal but not legal tender

When the Bitcoin white paper first rolled out in 2008,² it suggested how Bitcoin would be a decentralised form of electronic cash that bypassed traditional financial institutions. Since the original white paper, the original cryptocurrency and its descendants have primarily become investments for many people as opposed to practical payment forms.

It is for that purpose that some have been advocating for the authorities to make it a legal tender, which essentially means a legally recognised payment method. In this context, section 10 of the Currency Act 2020 stipulates that 'only currency note and currency coin issued by the Bank shall be legal tender in Malaysia at its face value provided that the currency note is not defaced and the currency coin is not tampered with'.

As the Bank Negara does not issue any cryptocurrency, it is not an acceptable legal tender in Malaysia. In fact, Bank Negara took a formal stance on Bitcoin in 2014 that 'The Bitcoin is not recognised as legal tender in Malaysia. The Central Bank 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.'³ It was also reported in March 2022 that the caretaker deputy finance minister Mohd Shahar Abdullah stated in Parliament that Malaysia has no intention of recognising cryptocurrencies as legal tender.⁴

Overview of cryptocurrency regulations

Despite not being a legal tender in Malaysia, cryptocurrency is not illegal and is regulated by Securities Commission through the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 ("Order 2019"), pursuant to Capital Markets and Services Act 2007 ("CMSA 2007"). Based on the Order 2019, all digital...