Indonesia has launched a state-backed cryptocurrency exchange to boost transparency and investor protection in the country’s booming crypto asset market. Trades on the platform are executed by registered private sector exchanges, including domestic giant Indodax, that now act in a broker-style role in the new system.
The government’s push for transparency comes against a backdrop of recent industry crises, including the collapse of international exchange FTX in 2022.
Crypto scams have also hit Indonesia hard, with hundreds of thousands of retail investors caught up in an app-based trading scandal in recent months.
“Following the high-profile failures of last year, regulators everywhere are zooming in on consumer protection. Against this backdrop, Indonesia’s choice of a more involved approach should not be surprising,” says Angela Ang, senior policy adviser at TRM Labs in Singapore.
Stifling innovation?
Trading activity on the state bourse, known as the Indonesian Crypto Asset Futures Exchange and inaugurated on July 28, is split from clearing and custody functions, which public authorities will also manage.
As such, the Indonesian government has peerless visibility into crypto trading activity and transaction records within its borders. This has led to criticism from some industry participants, who view the development as regulatory overreach and a step that could stifle innovation.
“While there may be differing views across the industry about a state-backed exchange, one thing we can all agree on is that it is a positive sign of the government’s continued interest in encouraging the growth of the crypto sector,” says Ms Ang.
Developing safeguards
For Patrick Kim, the chief executive of Uppsala Security, a global cyber security firm, the exchange is an essential first step in developing safeguards for Indonesia’s cryptocurrency market. It will also go a long way to improve investor protection.
This kind of support doesn’t exist [in most markets] today
“This is an excellent initiative by the government. It wants to put some structure in the crypto market before opening it up to more competition,” says Mr Kim. “Under Indonesia’s state-backed exchange, retail crypto users can get help. This kind of support doesn’t exist [in most markets] today,” he adds.
The launch of the state-backed exchange forms part of a more comprehensive overhaul of Indonesia’s crypto asset market.
Jakarta regulates cryptocurrencies as commodities – they are prohibited as a means of payment – but a law passed in January will see this change by 2025, when the Financial Services Authority takes the supervisory reins.
Experts think this will lead to the regulation of crypto as a financial security.
Growing market
An evolving rulebook is going hand in hand with explosive market growth. Data from Indonesia’s commodity regulator suggests the country experienced a near 50% growth in crypto users between December 2011 and November 2022.
More on crypto regulation
With the launch of its state-backed exchange, Indonesia is combining its status as a growing crypto market heavyweight with ambitious plans for regulatory innovation.
“Traditionally, south-east Asia has always looked up to Singapore for innovation and inspiration when it comes to the financial sector. But Indonesia has stepped up and is taking the lead here for cryptocurrency,” says Kiky Shannon, Uppsala’s global head of sales.
