In the early part of the last decade in Vietnam, inflation was out of control peaking at 23 percent in August of 2011. As a result, to protect their savings from rapidly devaluing, Vietnamese with excess cash ploughed their money into gold and US dollars. This exacerbated the problem, weakening the dong further. So the government stepped in and restricted the gold trade and more-or-less banned Forex trading.

And this may have been successful with inflation coming down to a much more manageable 4 percent by 2014.

Correlation, of course, does not necessarily mean causation. But, despite this, these reforms stayed in place nonetheless, laying the foundation for the strong growth in cryptocurrency trading that would evolve over the succeeding decade.

Specifically, they had made it exponentially harder to transfer money out of Vietnam, particularly cash earned through nefarious means or that had perhaps not properly been accounted for and reported to the government.

Industrious Vietnamese, as they are wont to do, had found ways around these restrictions, carrying cash strapped to their person or through elaborate networks of bank accounts and bank transfers all over the world that were connected through brokers who took a cut.

These alternative means of transferring money out of Vietnam, however, were risky and could result in hefty fines or maybe even prison time if discovered. They were also often complex and could be expensive–a far from ideal solution.

That is to say, there was a need for a simple, cost-effective, and low-risk way of moving money abroad and when cryptocurrency came along, Vietnam had its answer.

The State Bank’s response

The hype around cryptocurrency was palpable toward the end of the last decade. This new technology had sparked the interests and imaginations of investors around the world and subsequently had sparked the interests of central banks and regulators everywhere too–the State Bank of Vietnam was no exception.

But whereas central banks elsewhere were looking to manage digital currencies by launching sandboxes for digital asset innovators and experimenting with creating their own national cryptocurrencies, the SBV appeared to be more circumspect.

Instead, Vietnam’s central bank issued an official dispatch in 2017 effectively asserting that cryptocurrencies were not legal tender and could not be accepted as a means of payment.

Cryptocurrency, however, was not being used as legal tender nor was it really being looked at as a viable alternative to the dong–there was no need in that the dong had been relatively stable for some time and was functioning just fine.

With this in mind, it’s not clear regulators fully understood exactly what it was they were regulating and subsequently this had little impact. In this light, this dispatch would also set the tone for future moves on the cryptocurrency trade from the State Bank: they would be limited.

It was in this context, that the industry was able to grow in Vietnam mostly unabated and when COVID-19 hit the global economy Vietnam’s cryptocurrency industry was well primed to benefit.

A perfect crypto storm

COVID-19 lockdowns stimulated cryptocurrency trading all over the world, Vietnam included.

Confined to their homes, people couldn’t go to work and were looking for other streams of income that they could generate online. With Forex trading limited, Vietnam’s stock markets underdeveloped, and the outlook for the economy not looking great broadly anyway, cryptocurrency trading for many people was an attractive and viable option.

What’s more, a blockchain-based, Ho Chi Minh City-built, video game, Axie Infinity, was becoming increasingly popular. The game allowed users to earn cryptocurrency as a reward for winning battles against other players. For factory workers and labourers this was a means to make money playing games and from home–for many, it was almost too good to be true.

Furthermore, as Axie Infinity grew in popularity, so did its worth reaching a valuation of US$3 billion at its peak. This saw the game developers thrust into the spotlight with the media attention helping to raise awareness of cryptocurrencies among the wider population. It also created an impetus for everyday investors to familiarise themselves with cryptocurrency technology–a skill with broad applications beyond a simple video game.

That said, this momentum was to be short-lived. 

When, in September, China issued much stricter regulations on cryptocurrency trading and cryptocurrency businesses, the bottom fell out of the market and the hype began to fade. This also corresponded with the tail end of the pandemic whereby people could leave their homes and go to work again. This also meant that economies around the world were turning around and things were looking up–the perfect storm had passed and a steady decline in interest in cryptocurrencies had begun.

Graphics cards by the kilo

In October of 2022, a meme started circling on the internet, in which a local cryptocurrency trader was selling graphics cards by the kilo on the side of the street in Ho Chi Minh City. A joke to be sure, but pertinent nonetheless–a month later one of the world’s biggest cryptocurrency exchanges, FTX, collapsed.

In the wake of this multibillion-dollar crypto disaster, a myriad of stories found their way into the local news about life-savings lost and the mad scramble to try and withdraw funds from the defunct exchange but to no avail.

With this in mind, it looked as though cryptocurrency in Vietnam had lost its shine. That said, Vietnam still came in first place in Chainalysis’s Global Crypto Adoption Index in 2021 and 2022 and 3rd place in 2023, suggesting behind the scenes the trade was still alive and well.

Cryptocurrency in Vietnam in 2024

Vietnam’s economy has not had the best start to the year. 

The dong has been under increasing pressure and inflation is pushing upward. US dollars have become increasingly scarce with the State Bank dipping into its foreign currency reserves to keep Vietnam’s external trade moving along. 

Furthermore, remittances are drying up as overseas workers avoid converting their US dollars to dong expecting the local currency to sink further. 

On top of that, investors have been looking for alternative assets to store their wealth–gold, for example, has proved very popular and has hit record-high prices that are as much as 20 percent higher than the world gold price at times. The supply, however, has become very limited.

In this context, cryptocurrencies, especially ostensibly low-risk cryptocurrencies like stable coins–which are pegged to the US dollar–have become very popular.

Of note, the returns on these cryptocurrencies, by virtue of the falling dong, have made them quite attractive, relatively speaking.

For example, one USD Coin stable coin purchased on January 2 of this year cost 24,334 Vietnamese dong. As of May 29, that same stable coin was worth 25,431 representing a return of 4.51 percent.

For comparison, that same 24,334 deposited into a term deposit or savings account in Vietnam would have received an annualised rate of return of around 2.9 percent.

What’s next?

Earlier this year, the State Bank of Vietnam issued Decree 52 a part of which governs the provisioning of e-wallet services. There was some speculation that this would then allow local financial institutions to offer cryptocurrency services, however, the State Bank has since come out and said this is not the case. Note that digital assets are not mentioned at all in the decree.

In this light, cryptocurrency remains largely unregulated in Vietnam and the trade will likely continue as it has for some time now. That said, it’s been suggested that capital flight was one of the reasons China clamped down on cryptocurrency trading in 2021. With this in mind, given the similarities between how Vietnam and its neighbour to the north manage their economies, some sort of snap regulation in Vietnam would not come as a surprise.

That said, given the dynamic nature of Vietnam’s economy and decision-making apparatus, this could change and it could change quickly. In this light, foreign investors keen to keep up to date with the latest developments in Vietnam’s cryptocurrency industry should make sure to subscribe to the-shiv.