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Crypto investing now more popular than stock market
There are now more crypto investors in Indonesia than individual retail investors registered with the Indonesia Stock Exchange (IDX).
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rypto assets have rapidly gained in popularity among Indonesians despite – or perhaps because of – the global economic slowdown.
According to the Trade Ministry, crypto investment transactions grew fivefold in five months to more than Rp 370 trillion (US$25.8 billion) in May.
Indonesia had around 6.5 million crypto investors in May, while the number of retail investors registered with the Indonesia Stock Exchange (IDX) stood at just 5.37 million.
“Some crypto assets have shown a positive performance amid the economic downturn due to the pandemic. Investors and traders will switch to more attractive ways to boost their gains, one of which is crypto assets. Therefore, we have seen exponential growth since the third quarter of 2020,” Rieka Handayani, head of PR at cryptocurrency exchange platform Tokocrypto, told The Jakarta Post on Wednesday.
Tokocrypto is backed by one of the leading global cryptocurrency exchanges, Binance.
She went on to say that Tokocrypto had more than 90,000 weekly active traders in the first quarter of the year, with a daily average trading volume of around US$40 million to $70 million.
Stephen DeMeulenaere, lead advisor at IDK Foundation, which issues IDK cryptocurrency tokens, explained that as more people in Indonesia got internet access, digital currencies would become increasingly mainstream.
“We believe blockchain-based digital currencies and financial services are primed for significant growth as this technology matures and becomes easier to use,” he said in an email interview on Wednesday.
A so-called stablecoin, IDK pegs its value to the Indonesian rupiah with the purpose of creating a fiat-linked blockchain asset that can be bought and sold for other cryptocurrencies.
DeMeulenaere said IDK was predominantly used by crypto traders to settle transactions.
Unlike other cryptocurrencies, which can fluctuate dramatically in value against the US dollar or other currencies, stablecoins do not change significantly in value against the fiat currency they are linked to. For this reason, some stablecoins are popular for cross-border transfers and remittances.
“This is because transferring fiat currency in and out of the traditional banking system takes more time,” DeMeulenaere explained, adding, however, that IDK Foundation had “not seen significant activities in this area yet”.
Rieka and DeMeulenaere agreed that the popularity of cryptocurrencies had been heavily influenced by information on social media and the level of trust vested in the asset class around the world.
Read also: Urgent need to mitigate crypto risks in Indonesia
The rising popularity of crypto assets has prompted the Trade Ministry's Futures Exchange Supervisory Board (Bappebti) to establish a more protected trading environment.
“Bappebti is verifying the required documents for a crypto asset exchange,” Bappebti market development head Suhadi said on Tuesday.
Bappebti head Indrasari Wisnu Wardhana said in June that the government would set up a clearing and depository institution to ensure the safety of investors’ funds. The clearinghouse would keep 70 percent of exchanges’ assets as default funds and retain the ability to freeze funds if defaults occurred.
“The crypto asset exchange will play a big role in ensuring the safety of the crypto ecosystem in Indonesia. There will be checks and balances […], increased market conduciveness as well as increasing certainty and legality,” Rieka of Tokocrypto said.
Bappebti has been tightening regulations over cryptocurrency trading. It issued licenses for 13 cryptocurrency trading platforms in February as well as a regulation that recognized 229 cryptocurrencies as legally tradable commodities in December.
Crypto marketplaces are subject to corporate income tax (PPh Badan), and the government is in the process of preparing a type of final income tax (PPh Final) to be imposed on virtual currency transactions.
Read also: Trade Ministry's futures regulator mulls crypto transaction tax
Institute for Development of Economics and Finance (Indef) economist Eko Listiyanto said tax revenue was the most viable way for crypto trading to contribute to Indonesia’s economy, while there was no obvious benefit for the real sector.
“Beside taxes […], the benefits of crypto assets for the Indonesian economy are uncertain. If the price of bitcoin keeps rising, investors’ money will go there and not to the real sector,” he told the Post in a phone interview on Tuesday.
Eko said investors were opting for crypto assets because bank deposits and the stock market were less attractive amid the pandemic-induced global economic slowdown.
“If the global economic recovery can be accelerated, I think people will go back to investing in the stock market or other commodities because of better fundamentals, and some cryptocurrencies will not survive this,” he added.
