The digital asset regulation in Southeast Asia is changing the Thai digital assets landscape for good.

Following our first post on digital assets custody, this is the second article of a series where we address the implications for the future adoption of digital assets.  Being in the space since 2017 we’re thrilled to see how not only people but also institutions in Thailand are increasing the demand for digital assets!

Increasing demand for Digital Assets in Southeast Asia

Although there are still very few places around Southeast Asia that actually accept digital currencies as a payment method, Thailand has been open to cryptocurrency trading counting with over 5 regulated exchanges present in the country. As reported by Cointelegraph, crypto trading volume in Thailand has grown in recent months from about $630 million in December 2020 to $2.17 billion in January.

Considering that not only Thai investors are among the more sophisticated and affluent compared to the rest of Southeast Asia as described in a detailed Messari Report about Asia’s Crypto Landscape, but also the market is more evolved with sophisticated market makers. The List of Digital Asset Exchanges available and operating in Thailand will only increase, allowing a broader range of options for newcomers to join the crypto space.

Additionally, Thailand is one of the first countries in Southeast Asia to regulate the blockchain ecosystem and the more adoption takes place, the more flexible regulators become—after having initially banned Bitcoin in 2013 and banned banks from offering services to digital asset exchanges in 2018 to “protect its consumers and institutions”— the Thai government has switched course by announcing progressive regulations designed to encourage investment and innovation where the laws keep getting updated in order to adapt for market needs. We can see this reflected by the press release issued on March 19, 2021 by the Bank Of Thailand on its stablecoins regulation policy where it is stated that Baht-backed stablecoins that are intended to be used as a means of payment, may be classified as electronic money (e-Money). As for other forms of stablecoins including foreign currency-backed stablecoins, asset-backed stablecoins, and algorithmic stablecoins that are not illegal, the BOT is open to receiving comments and feedback before considering regulatory guidelines.

Besides this, in the next few years the BOT is in the process of experimenting a Retail Central Bank Digital Currency to meet the needs of the general public, improve service efficiency in the business sector, and increase access to financial services.

Banks and the SET in Thailand exploring offering digital assets

Southeast Asia is embracing Digital Transformation and the interest in digital assets continues to grow at an institutional level, leading banks to offer financial services and products through both offline and online channels. This has been the case with KASIKORNBANK (KBank), Thailand’s second-largest lender by total assets which now handles around 40% of the country’s total digital banking transactions according to the Bangkok Post.

Furthermore, as part of the digital transformation program, KBank’s technology arm Kasikorn Business-Technology Group (KBTG) is increasingly looking to recruit Digital technology developers to expand across Thailand, China and Vietnam in the years to come through to 2023. The aim of this recruitment drive is to explore the Blockchain ecosystem, more specifically DeFi, which has the potential to empower users to lend and borrow funds from others without relying on brokerages.

It’s worth highlighting that the initial phase of this program has been successfully completed throughout 2018-2020 in collaboration with the Stock Exchange of Thailand (SET) via a digital asset investment service to integrate  Distributed Ledger Technology (DLT)-based Initial Coin Offering (ICO) portals, digital asset exchanges and digital wallets. The SET president Pakorn Peethawatchai said that the platform is one of the SET’s strategic projects initiated in line with the government’s policy to develop the country’s digital economy. Eventually, it intends to connect to digital infrastructure for capital markets, enabling its participants as well as real and social sectors to use it in a transparent and fair manner.

On the other hand, noteworthy examples to evidence this digital transformation include the venture arm of Thailand’s oldest bank, SCB10X which is participating in an $80 million Series C fundraising round for institutional crypto custodian solutions and digital asset platforms. In addition to The Bank of Thailand (BOT) which also sees the benefits of financial technology and is ready to embrace new innovations to improve financial services as announced in the recent Press Release:

“The BOT will continue to closely monitor the developments of new technologies, taking into account the benefits and related risks in the effort to adopt policies supportive of promoting ongoing economic development while maintaining financial system stability.”

Why are institutions getting more involved in crypto?

Besides the natural growth of crypto adoption that we are experiencing, another important factor to consider is that compliant infrastructure and regulation in Southeast Asia are building the foundations of the security token ecosystem as we’ve seen with the sandbox for custody offered by the Monetary Authority of Singapore (MAS).

As more banks and exchanges are offering Digital assets there is a growing need for custody.

Given the increasing demand for digital assets previously mentioned along with the fact that Thailand is one of the more highly regulated crypto trading markets and that the SEC takes the responsibility to protect retail investors from the risks involved in crypto investment, custody solutions will become mandatory in the country. Moreover, the SEC aims to restructure the market by creating a framework for digital asset regulation that addresses risk while also supporting innovation.

As discussed in our previous post, investing in cryptocurrencies is a big step for any institution. While the crypto market has evolved over more than a decade and now offers dozens of assets attractive to professional-grade investors; along with the added complexity that comes with more regulation, custody also remains a first-order barrier to institutional investment. Nevertheless, this opens up opportunities for Custody service providers not only to lower the barriers to entry but also provide secure payments infrastructure for its crypto-related services, allowing users to have exposure to more esoteric areas of public blockchain such as DeFi. This will in turn create economic value for Thailand’s financial services sector and will likely improve Thailand’s financial inclusion for those unbanked or underbanked by enabling “better access.”