D

espite its massive development globally, cryptocurrency is still quite an uncharted area in Indonesia. Bank Indonesia’s recent press release was a major let down for cryptocurrency as it shows the government’s stance is to discourage people from investing in cryptocurrency.

Moreover, in its press release, the central bank emphasized the prohibition on financial institutions from using cryptocurrency as a means of payment through regulations.

The government’s stance, however, does not mark the end of cryptocurrency as an investment tool in Indonesia. According to the Financial Services Authority (OJK), although prohibited as a means of payment, it does not necessarily mean that cryptocurrency is also prohibited as an investment commodity because such possibility is still being evaluated by the Trade Ministry and the Futures Exchange Supervisory Board (Bappebti).

Indeed, we could see the first significant development of cryptocurrency in May when Bappebti’s officials confirmed that a decree recognizing cryptocurrency as an investment commodity had been signed by the head of Bappebti and that the supporting rules would follow.

However, it has been three months now and still there are no promising signs that further developments will occur soon.

One of the sectors lacking proper regulations is the initial coin offering (ICO) itself. The ICO is an essential part for cryptocurrency investment as in ICO the fund is raised by selling a new token that is projected to be a cryptocurrency.

The ICO allows companies to acquire fresh funds without affecting the shareholding structure through share related transactions or issuing corporate bonds that adds liability in their book.

For investors, the ICO accommodates an investment alternative in a company or certain project where they do not need to be involved in corporate formalities and they can instead focus on reaping the profit derived from the token established through the ICO, which can later be exchanged with cryptocurrency.

Although unregulated, some companies in Indonesia have actually implemented the ICO as a funding alternative. One of these companies even combined the concept of cryptocurrency and precious metal to provide more securities to investors.

However, letting these practices run without a proper legal basis presents the investor unreasonable risk. The biggest risk comes from the issuer.

Similar to an issuer in an initial public offering, the issuer of an ICO is really important as the later performance of the business platform that the issuer offers in the ICO determines the value of the token established through the ICO. Thus, it is essential to verify the issuer both legally and commercially. Presently in an ICO, an investor can only rely on the information provided by the issuer in a whitepaper.

The whitepaper serves as a prospectus in an ICO, but the difference is that, apart from the investor, there is no one that will evaluate the whitepaper and the issuer, not without a proper regulation that can control and supervise this process.

Moreover, different with shares, investment in cryptocurrency does not grant the investor any corporate rights such as the right to vote or rights as minority shareholders.

Thus, without proper regulations, investors get no protection at all for their investment in cryptocurrency. There is no guarantee that the issuer and the business platform it offers are valid and real, and under the jargon “it is just part of business risk” any ill will parties can abuse this situation for their own benefit.