Crypto Growth in Indonesia
14 Apr 2022
In January 2022, Indonesia’s Financial Services Authority issued a statement that prohibited financial firms from offering and facilitating the sale of crypto assets, warning against potential scams.
Cryptocurrencies have a huge opportunity for growth in Indonesia. According to data from Triple A, Indonesia is home to the seventh-largest cryptocurrency user base in the world. Data from 2021 suggests that over 11 million Indonesians invest in crypto assets. Not only that but there is still a huge potential for growth in the region, as only 4% of the entire Indonesian population transacts in cryptocurrencies. While payments in crypto are considered illegal in Indonesia, digital assets are allowed to be traded as commodities. To support the growing demand for crypto in Indonesia, the government has tried to provide more regulatory guidance around digital assets. However, there may be a divide as to how various authority figures view crypto.
Analysts have reported that in 2021, crypto trades in Indonesia surpassed stock trades within the region. This growth shows no sign of slowing, as Bitcoin (BTC), Ethereum (ETH), and Solana (SOL) have increasingly been gaining traction in Indonesia over the last few years. Although governmental bodies have made efforts to accommodate the rising demand for crypto, they have not always agreed on the approach that should be taken.
In January 2022, Indonesia’s Financial Services Authority issued a statement that prohibited financial firms from offering and facilitating the sale of crypto assets, warning against potential scams. “Please beware of allegations of Ponzi schemes in crypto investments,” its statement read. However, in Indonesia, cryptocurrencies are regulated by the Commodity Futures Trading Regulatory Agency (BAPPEBTI) and not the Financial Services Authority. Bitcoin and other cryptocurrencies are viewed as commodities by the BAPPEBTI. So far, around 229 cryptocurrencies have been approved for trade in Indonesia. Nevertheless, they are not recognized as a viable means of payment.
Crypto taxed as a commodity in Indonesia
In parallel with the fact that cryptocurrencies are considered commodities in Indonesia, the Finance Ministry of Indonesia announced that beginning in May, the asset class will be subject to a value-added tax of 0.1%. As for earnings and capital gains reaped from cryptocurrency trades, they will be subject to a 0.1% final income tax. Imposing a 0.1% income tax on cryptocurrency gains resembles how shares listed on the Indonesian stock exchange are taxed. However, the tax on digital assets is already significantly lower than that on other goods and services within Indonesia.
How religion affects cryptocurrency in Indonesia
Indonesia is home to the world’s largest Muslim population. Because of this, a lot of values and norms within the society are largely influenced by Muslim scripture and the occasional fatwa – a religious ruling given by a reputed Islamic scholar. Cryptocurrencies are not exempt from the fatwa. As they are still a relatively new asset class that has yet to be fully regulated globally, Indonesian Islamic scholars have chosen to exert caution. Regarding cryptocurrencies, many Islamic bodies such as the National Ulema Council have come forward and stated that cryptocurrencies were haram, or unlawful. Under Islamic law, cryptocurrencies are not regarded as a medium of exchange and a viable investment, because they are speculative in nature and not backed by anything concrete. Due to the uncertain nature of cryptocurrencies, Indonesia’s council of religious leaders has therefore cited that digital assets may be harmful. Despite this decree, cryptocurrency still thrives within the region, but this conclusion may deter some Muslims from transacting in cryptocurrencies.
In January 2022, one of the largest Islamic organizations in Indonesia, the Tajdid Council and the Central Executive Tajdid of Muhammadiyah, issued a new fatwa against cryptocurrency use. In the religious ruling, it cited “the speculative nature” of cryptocurrencies and stated that the asset class was obscure. Subsequently, it did not meet the values of Business Ethics according to Muhammadiyah. This follows the Indonesian Ulema Council’s proclamation in November 2021 that cryptocurrencies were haram as a transactional tool.
We will have to see how these matters evolve. As definitions around cryptocurrencies evolve and market behaviour matures, it’s possible to see different rulings on the case.
The next step for crypto in Indonesia
Despite this conclusion, the growth of cryptocurrencies has not slowed in Indonesia. In 2021 alone, $9.8 billion in crypto transactions was recorded in the region. Furthermore, some Muslim investors have chosen to circumvent the fatwa and continue earning with crypto. As more regulations are built around this nascent asset class, the recognition of cryptocurrencies at the governmental level is likely to change.
It may also be interesting to note that other places with a huge Muslim demographic such as Dubai have chosen to welcome crypto with open arms. The United Arab Emirates is making headway in becoming a global crypto hub through the introduction of a new “Virtual Assets Law” that seeks to regulate digital assets like cryptocurrencies more closely. For Indonesia, the first step to widespread crypto adoption may be the recognition by regulatory authorities that crypto constitutes a viable means of payment.
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