Vietnam’s new Law on Digital Technology has been heralded as landmark legislation in that it officially recognises cryptocurrencies in law, but it’s more foundational than game-changing. It’s what is built on top of it that will really make a difference, though what that might be, and how effective it might be, is still not entirely clear.
The crypto industry in Vietnam has boomed in recent years, and there are a lot of reasons why.
For one, capital controls make it difficult to move money out of the country through official channels, that’s not to mention limited other investment options, or a general penchant for risk-taking among likely crypto traders.
It has, however, for the most part, been unregulated, with the only direction coming from the government being confirmation that it cannot be used as legal tender.
This has allowed the industry to grow largely unfettered, not only by regulators but by the tax authorities too.
It has, however, caused problems.
Large unaccounted-for outflows of capital have been recorded in Vietnam’s balance of payments, which has put pressure on the local currency.
Moreover, there has been some suggestion that it is being used for nefarious activities, which has seen Vietnam pop up on the Financial Action Task Force (FATF) watchlist.
It’s in this context that the new law was developed and has been heralded as a game-changer, with Digitimes going so far as to claim it sets a “global standard for token regulation and licensing”.
This may, however, be a bit of a stretch.
The law does uncork a key bottleneck for the industry in Vietnam, this is true, but alone, its impacts will be limited. Instead, it will take supporting legislation and regulation to really give it teeth.
With this in mind, this article unpacks the digital asset components of this law, the potential it holds, the way the government currently intends to utilise that potential, and the problems it might face doing so.
So, what does the law say about digital assets?
The short answer: Not that much.
It actually only has three articles out of 51 addressing digital assets, but those three articles have the potential to make a big impact.
In the past, attempts by the authorities to make crypto traders pay tax on their income generated through crypto trading were rejected by the courts for lack of a legal definition of exactly what digital assets are.
This section of the law resolves that, officially codifying digital assets as their own, unique legal object.
Not only does this mean they can be taxed, however, but it also means they are recognised as property and therefore property rights can be applied.
Theoretically, this could mean including digital assets in balance sheets, or using them as collateral to borrow money, and it should mean they have legal protection should disputes arise between traders.
But where it might have the biggest impact is in the development of the local industry.
The plans already on the table, however, seem likely to run into significant obstacles.
Specifically, a pilot program was floated back in March for a local exchange to be managed by the government.
Crypto traders in Vietnam would be made to register their digital assets, on said exchange, with hefty fines for non-compliance of up to US$7,700.
Widely panned by the trading community as economically harmful and technically unworkable, this looks to be creating friction between regulators and the trading community and could create compliance challenges.
Moreover, this conflicts with a lot of the ideology around digital assets, decentralised finance principles and the appeal of anonymity, for example.
It also strips away a core function of cryptocurrency in the ability to move money across borders cheaply and relatively easily.
On that note, most crypto assets have little other utility, which speaks to possible liquidity issues with a local exchange that is isolated from the global trading system.
Even then, if these issues could be overcome, Vietnam’s crypto trading community is relatively mature and accustomed to using international exchanges. This would mean finding a way to coax these traders back home — a local exchange wouldn’t just have to meet international standards, it would need to offer something better.
What’s more, the industry, particularly meme coin trading, relies heavily on marketing hype to draw in buyers and push up prices. This means being able to communicate far and wide with ease.
Vietnam, however, has banned Telegram, which is among the most used communications apps for crypto trading in the world.
Within days of the ban going into effect, it was estimated that user activity across ten key Vietnamese crypto communities dropped over 45 percent.
Moreover, this ban was announced and executed in a matter of just days – that is to say, the ecosystem that would support a local industry has unique limitations that might make it difficult to develop an internationally competitive trading environment.
Although, this is just the path the government looks to be pursuing right now. The new law really does very little in dictating the direction of the industry, and it could just as easily be opened up to the private sector to develop more in line with market expectations.
This seems unlikely, but not impossible.
The point being, the new Law on Digital Technology isn’t so much a game-changer for digital assets as it is an uncorking of a legal bottleneck that should allow for potentially game-changing legislation to be developed.
Whether it does or not, remains to be seen, and so for crypto trading, right now, aside from tax obligations and property rights, it doesn’t change a lot.
That’s not to say that it won’t one day, just that today does not look to be that day.