High Stakes, High Reward: The Rise of Cryptocurrency and Its Risks in Indonesia

There is a high chance that you might have heard about cryptocurrency, Bitcoin, or Dogecoin recently. Maybe some friends or family members have persuaded you to invest more in cryptocurrency due to its high-risk, high-reward scheme. However, what exactly is cryptocurrency and what makes it such a trending topic for the past year? According to Peraturan Bank Indonesia Nomor 18/40/PBI/2016 Tahun 2016, virtual currency is a form of digital currency that is published by a non-monetary authority through mining, asset purchase, or reward transfer such as Bitcoin, BlackCoin, Dash, Dogecoin, Litecoin, Namecoin, Nxt, Peercoin, Primecoin, Ripple, and Ven (“uang digital yang diterbitkan oleh pihak selain otoritas moneter yang diperoleh dengan cara mining, pembelian, atau transfer pemberian (reward) antara lain Bitcoin, BlackCoin, Dash, Dogecoin, Litecoin, Namecoin, Nxt, Peercoin, Primecoin, Ripple, dan Ven”).^[1] To clarify it further, crypto asset is defined as an intangible commodity–which has a form of a digital asset, uses cryptography, peer-to-peer network, and a distributed ledger–to regulate the creation of new units, transaction verification, and to secure transaction without interference from other parties (“Komoditi tidak berwujud yang berbentuk digital aset, menggunakan kriptografi, jaringan peer-to-peer, dan buku besar yang terdistribusi, untuk mengatur penciptaan unit baru, memverifikasi transaksi, dan mengamankan transaksi tanpa campur tangan pihak lain”).^[2]

Despite its high reward, there is a considerable amount of skepticism surrounding the sustainability of cryptocurrency as a safe form of investment. Thus, this article would like to explore whether or not cryptocurrency is a safe choice of investment in Indonesia–arguing that it is not yet a safe choice of investment despite its high rewards. The arguments will be based on the lack of regulation on cryptocurrency in Indonesia and the volatile crypto market.

In Indonesia, it entered the trading market in 2013, initially having three ‘exchangers’ to do Bitcoin transactions.^[3] Rapid growth followed it in the Indonesian market. According to Badan Pengawas Perdagangan Berjangka Komoditi (Bappebti)–the government institution under the Ministry of Trade that oversee cryptocurrency transactions–there are 4.2 million active investors of crypto assets in Indonesia. To put things into perspective, this figure is more than twice that of Indonesian stock investors, which have 2 million registered investors.^[4] The legal basis for cryptotrading was created by the Indonesian government through Peraturan Badan Pengawas Perdagangan Berjangka Komoditi Nomor 5 Tahun 2019 tentang Ketentuan Teknis Penyelenggaraan Pasar Fisik Aset Kripto (Technical Provisions on the Operation of Crypto Asset Market), issued by Bappebti. Bappebti also issued another regulation on cryptocurrency transactions in 2020 through Peraturan Badan Pengawas Perdagangan Berjangka Komoditi Nomor 7 Tahun 2020 tentang Penetapan Daftar Aset Kripto yang dapat Diperdagangkan di Pasar Fisik Aset Kripto, which lists down 229 cryptocurrencies that are legal to exchange in Indonesia.

Despite the regulations mentioned earlier, the relatively new cryptocurrency phenomenon means that it currently lacks adequate government oversight. Up until the time of writing, there is no separate exchange market for cryptocurrency in Indonesia, which can protect stakeholders and oversee the crypto market. This issue was eventually addressed in April 2021, where Bappebti and the Ministry of Trade announced that they would establish a separate exchange market for cryptocurrency in Indonesia. The Head of Bappebti, Sidharta Utama, explained that this decision is intended to protect stakeholders in their crypto exchanges. The Vice Minister of Trade, Jerry Sambuaga, mentioned that the exponential growth of cryptocurrency had pushed the urge to create a specific institution and further regulations on this matter. Until the creation of the said exchange market, Indonesian crypto stakeholders are not protected by the law and prone to market uncertainty.

The Indonesian government can take inspiration from the proposed European Union “Markets in Crypto-Assets Regulation” (MiCA), which is touted as the future global standards for domestic cryptocurrency regulation.^[5] MiCA is the EU’s attempt to create a comprehensive legal framework for the practice of cryptocurrency, whereby the law will be implemented in all EU member states to regulate crypto assets. MiCA is proposed to create a clear set of regulations and long-term legal certainty, which could attract more investors due to its proposed stability and protection.^[6] A separate crypto exchange market announcement can be signaled as a start for more government support on cryptocurrency in Indonesia. Nonetheless, this current lack of regulation for cryptocurrency in Indonesia makes stakeholders susceptible to market shocks and inadequate consumer protection. Thus, cryptocurrency is not a safe choice for Indonesian investors as of now.

Another argument will be based on the highly volatile market of cryptocurrency. Due to its fast-changing nature, the price fluctuates more frequently than other forms of investments. After reaching its record high in April 2021, the price of Bitcoin was followed by successive losses, falling more than 50% to $30,000 in mid-May. After high gains in April, other cryptocurrencies also suffered major drops in May, with Ether dropping down more than 22% and Dogecoin fell 25%.^[7] This fall can mainly be attributed to several reasons, including Tesla’s suspension on bitcoin payments and the Chinese financial industry warning in stopping cryptocurrency exchange. On May 12, Tesla CEO Elon Musk announced that Tesla had suspended vehicle purchases using bitcoin. He claimed that this decision is due to environmental concerns over the cryptocurrency “mining” process. Musk’s comments caused the loss of over $300 billion in the crypto market that day.^[8] This announcement was the continuation of Tesla’s announcement that they have bought $1.5 billion worth of bitcoin and that they would accept bitcoin as a means of payment for Tesla products.^[9] This shows the significance of Tesla and Elon Musk’s words in the crypto market, with cryptocurrency sentiment fluctuating based on their statements.

One of Elon Musk’s tweets that have affected the price of Bitcoin

The other reason for the massive cryptocurrency drop was three Chinese financial institutions issuing a warning for financial institutions, dissuading them not to conduct virtual currency trading. China is known to impose hard-line policies on cryptocurrency that causes its operations to move abroad.^[10] Besides these two reasons, there are also risks of scams and market crashes in cryptocurrency, highlighting its volatility as a stable form of investment.  In Turkey, the founder of one of its largest crypto markets fled the country when the crypto market started to worsen–leaving the investors in the dark over the status of their investments.^[11] This event showcased the high-risk factor that follows crypto transactions, adding to why it is still not a safe form of investment for prospective investors.

Cryptocurrency has gained immense traction due to its high-risk, high-reward approach and it can be seen from its meteoric growth in the past decade. However, it warrants high risk for its stakeholders, such as market crashes and dependence on external factors on the market’s stability. It should be noted for both current and prospective investors always to be aware of their crypto investments to minimize losses. Minimal government regulations on cryptocurrency in Indonesia indicate the lack of protection and oversight on the crypto market in the country. The government should also create suitable measures to protect the stakeholders over this new and transformative form of investment. Thus, while cryptocurrency is not yet a safe form of investment in Indonesia, it still holds a bright future if paired with creating a supportive environment on cryptocurrency exchanges in the country.

Author: Jasmine Noor
Editor: Sri Handayani Nasution

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