Background

One particular technology that has become very popular and controversial are digital or cryptocurrencies backed by blockchain technology. While the first digital currency, Bitcoin, emerged in 2009, public awareness of digital currencies increased around 2016. However, every new transformative technology will go through a growth cycle – phases which range from digitalisation, deception, disruption to democratisation. In the initial days of Bitcoin, many pointed out that it was overhyped, and discussions revolved within the domain of speculative investors. This is considered the period of “deception” before it really “disrupts” existing industries. After Bitcoin’s well-documented meteoric boom in 2017 and bust in 2018, interest from policy makers and regulators have intensified as it became clear that changes were needed to establish a sustainable and more stable digital currency ecosystem.

The subjects of blockchain and digital currencies are, however, significant in scope and are still relatively nascent. In addition, the economic potential and risk of these topics are still widely debated in the policy and regulatory space with large differences in views concerning digital assets or digital currencies, initial coin offerings (ICOs) or tokens and exchanges. Even the terminologies are not standardised and are sometimes used interchangeably, with growing diversity in terminology over time as regulators gain a more nuanced understanding of their differences.

Executive Summary

• Section 1 starts with an introduction to the key elements of blockchain as the underlying technology behind digital assets, to provide a broad understanding of how this evolving technology may impact the future of the financial industry.
• Section 2 discusses the role of digital assets as a new asset class for investment, consumer behaviour and attitudes to it, regulatory approaches taken by different jurisdictions as well as Malaysia’s regulatory approach.
• Section 3 discusses the role of digital assets as an alternative fundraising mechanism, consumer behaviour and attitudes to it, regulatory approaches taken by different jurisdictions as well as Malaysia’s regulatory approach.
• Section 4 provides an assessment of the regulatory approach in Malaysia and concludes with some key considerations for policy makers and the financial industry participants to work together to identify innovative opportunities for leveraging on this promising technology for overall capital market development.
• It is not the intention of this study to be exhaustive. Given the rapid evolutions in its technological applications and as digital assets and its varying forms further emerge over time, further adaptations to the regulatory approaches may need to be considered.

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