ALSA LC UNDIP

Digital Economy : Cryptocurrency Dominates The Stock Market and Regulations Behind It

Digital Economy : Cryptocurrency Dominates The Stock Market and Regulations Behind It

 

​​ On May 4th 2021, one bitcoin was valued at $56,000.1​​ Bitcoin is the world’s first decentralized cryptocurrency (no central authority and no third party in transactions) created by Satoshi Nakamoto in 2009. This is what makes it so popular and recognized as a de facto cryptocurrency for mainstream investors.​​ The advantage of bitcoin over other financial instruments is that it is not tied to a tangible asset and is considered a deflationary currency which means the more people want and buy it, the higher its value will be.

Nevertheless, the manifestation of polemics regarding the circulation and the use of bitcoins among the world’s community is inevitable. Many investors invest their capital there but on the other hand, there are some government officials who are kind of less supportive about the existence of​​ these cryptocurrencies, more specifically, bitcoin. Gita Gopinath, an economic counsellor at the International Monetary Fund said, “Bitcoin is an example of a cryptocurrency that doesn’t serve the role of money at all. It’s a very speculative investment class. In terms of substituting for what money is, I don’t think it comes close.​​ (April 21st 2021) price on quote date $54,996.31.2​​ The argument given is strengthened by the decline of bitcoin’s rate on June 14th, 2021 to $38,928.44.

 

BTCUSD Rates by Coin Market Cap ($38,928.44)

 

Based on fact, the presence of cryptocurrency triggers the formation of a fundamentally new system of economic relations where the exchange of assets takes place without involving centralized financial institutions or other intermediaries. The security and reliability of transactions between counterparties is provided by a distributed ledger system that controls and reliably records committed transactions with the help of cryptographic functions also known as a blockchain. Cryptocurrency is a new phenomenon in public life challenges the state with difficult tasks arising from the need for legal regulation of newly emerged and intensively developing social relations – providing the balance of interests of various stakeholders, strategic planning is oriented toward building a digital economy, which is impossible without this blockchain.3​​ 

Blockchains are digital sequences of numbers coded into computer software that permit the secure exchange, recording, and broadcasting of transactions between individual users operating anywhere in the world with Internet access. Like any technological changes, the development of blockchains drew on and combined several existing technologies. Blockchains are intended to be maintained by all users in​​ manners meant to be immutable, unless users arrive at a clear consensus to undertake changes.​​ 4​​ 

One of several things that use blockchain as the technology is cryptocurrency. Cryptocurrency or cryptographic money is a virtual type of cash that is used as alternative money, where the currencies are generated and traded by cryptographic process. Most of these cryptocurrencies are decentralized in computer-based networks and based on peer-to-peer technology and open-source cryptography that does not depend on central authorities such as central banks or other administrative institutions. In our legal system, the definition of cryptocurrencies could be found in the explanation of Article 34 letter A, that is “What is meant by “virtual currency” is digital money issued by a party other than the monetary authority obtained by mining, purchasing, or transferring gifts, including Bitcoin, BlackCoin, Dash, Dogecoin, Litecoin, Namecoin, Nxt, Peercoin, Primecoin, Ripple, and Ven. Not included in the definition of virtual currency is money electronic.”​​ 

Looking back at history, the first, not perfect, cryptocurrency was created by Berkeley Programmer David Chaum called e-cash using a Blind Signature technology, which is the purpose of it to be an untraceable payment system that separates people from the transactions they made in 1983. Next in 1997, someone called Adam Beck introduced the first proof-of-work algorithm, the algorithm would be an important source for controlling the circulation of cryptocurrencies. In the same year, another member of cyberpunks and a researcher at Microsoft company named Wei Dei released a cryptocurrency called B-money that implements the concept of decentralization. Seven years later, Hal Finney, a computer scientist and another member of cyberpunks developed proof-of-work protocol by Adam Beck into Reusable Proof of Work (RPOW). ​​ RPOW​​ would allow the user to transfer a digital token then delete and make a new token. The process of it would be known as the first digital cash system proof-of-work. In the same year, 2014, released another failed cryptocurrency named Bit Gold, that was created by another computer scientist and cryptographer called Nick Szabo. Bit Gold is a protocol consisting of a combination of the decentralized concepts of Wei Dei and RPOW. Then in 2009, the first perfect cryptocurrency, Bitcoin, was launched. The launch was made after a paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System, written under the pseudonym Satoshi Nakamoto, was released. And now, per Jan 2021, the calculation of the number of cryptocurrencies is more than 4,000.​​ 5

 

Regulations

  • BI Regulation Number 19/12/PBI/2017

This regulation explains that fintech are prohibited to conduct payment system activities using virtual currency.​​ 

  • Commodity Futures Trading Supervisory Agency Regulation Number 5 of 2019 concerning Technical Provisions​​ for the Implementation of the Physical Market for Crypto Assets on the Futures Exchange.​​ 

This regulation explains that Indonesia considers cryptocurrency as crypto assets and classifies it as a commodity that can be used as the subject of futures contracts.​​ 

 

Cryptocurrencies can be a means of payment for goods and services, and, for example, US law specifically stipulates that it can be a unit of payment through which wages are paid. In some countries, cryptocurrency has become a recognized and accepted unit of settlement by various subjects in the market. The US Financial Crimes Enforcement Network (FinCEN) believes that transactions involving the exchange of cryptocurrencies for fiat money should be regulated in the same way as operations involving the exchange of fiat money only.6

Contrary to the US, China explicitly banned exchange or financing activities between banknotes and “coin substitution” in 2017. This can be seen from the announcement of the People's Bank of China (“PBoC”) and five other ministries, that financing uses cryptocurrencies, such as ICOs. , "essentially an unauthorized public financing of illegal, and suspected involvement in the sale of illegal coins, illegal issuance of securities, illegal fundraising, financial fraud, pyramid sales, and other illegal and criminal activities in September 2017."7

From these particular datas, it can be concluded that cryptocurrencies are still not allowed and legal in several countries. This creates an issue while transacting with any parties from such countries.​​ 

A series of Indonesian policies towards cryptocurrencies to date seem skeptical. First, BI Regulation Number 19/12/PBI/2017 which prohibits fintech from processing​​ payment transactions using virtual currencies, hit hard the entire virtual currency ecosystem in Indonesia. Following this ban, Indonesian Bitcoin payment platforms, including Toko Bitcoin and Bitpay, closed voluntarily in October 2017, and other extant virtual currency exchanges such as ArtaBit, Luno and Indodax are gripped by desperate concerns over the government making aggressive steps to remove the entire virtual currency industry in Indonesia.​​ 8

Second, when the Bitcoin market price peaked from December 2017 to January 2018, Government concerns also hit new highs. Bank Indonesia,​​ the Indonesian Ministry of Finance, and the Center for Financial Transaction Reports and Analysis (PPATK) all issued press releases warning the public against the use or investment of virtual currencies. At the same time, the Financial Supervisory Service​​ Authority (OJK) and Bank Indonesia simultaneously officially appealed to the public not to own, acquire or trade cryptocurrencies following a pre-launch event for cryptocurrency-based investment products by Aladin Capital, a global financial group based in the United States. United States and Switzerland.9

Third, as the price of Bitcoin has weakened significantly since then, there was no explicit attempt by the Government to adopt regulations governing activities with virtual currencies as part of the fintech industry, until the Futures Trading Regulatory Agency (CoFTRA), under the Ministry of Commerce, announced that they have approved a decree allowing trading of cryptocurrencies as commodities on futures exchanges. The decree resulted as Commodity Futures Trading Supervisory Agency Regulation Number 5 of 2019 concerning Technical Provisions for the Implementation of the Physical Market for Crypto Assets on the Futures Exchange. It shows that Indonesia considers cryptocurrency as crypto assets and classifies it as a commodity that can be used as the subject of futures contracts. In addition to these regulations, Indonesia has now established a new regulation that explains that there are 229 types of crypto that can be traded on the physical market for crypto assets.​​ 

Even though there is a regulation that made cryptocurrency seems legal, ​​ its reach among various parties in the market (e.g., investors, owners, sellers, buyers, developers, stock exchange business holders, secured creditors, various parties to​​ the offer), prime public, or interest holders) remain very limited. The failure of the judiciary​​ or academics to explore theoretical developments in the field only exacerbates the situation.10

In other words, at this point in its development, Indonesia does not accommodate the basic principles of global policy but is simply sticking to piecemeal regulations while avoiding the hard work of successfully creating a clear regulatory approach to this challenging subject. While the Government's skepticism about​​ the health of the cryptocurrency market is completely understandable, how to protect the various parties in the existing market is a distinct issue that requires urgent attention from policymakers, legal practitioners, judiciaries and academic researchers.

Cryptocurrencies have seen their biggest boom since late 2017 that has attracted a lot of eyeballs. Investors are eyeing the top cryptocurrencies to add a mix to their portfolios. Bitcoin, an exemplar cryptocurrency, recently hit a record high of $63,000​​ before seeing high sales. Nevertheless, the manifestation of polemics regarding the circulation and the use of bitcoins among the world’s community is inevitable.​​ 

In our legal system, the definition of cryptocurrencies could be found at the explanation of​​ Article 34 letter A, that is “What is meant by “virtual currency” is digital money issued by a party other than the monetary authority obtained by mining, purchasing, or transferring gifts, including Bitcoin, BlackCoin, Dash, Dogecoin, Litecoin, Namecoin,​​ Nxt, Peercoin, Primecoin , Ripple, and Ven. Not included in the definition of virtual currency is money electronic.”. ​​ 

The use of cryptocurrencies differs in many countries, depending on their own constitutions. There are certain countries that allow the​​ use of cryptocurrencies. However, there are some countries that still do not allow the use of cryptocurrencies.​​ 

US law specifically stipulates that it can be a unit of payment through which wages are paid. The US Financial Crimes Enforcement Network (FinCEN) believes that transactions involving the exchange of cryptocurrencies for fiat money should be regulated in the same way as operations involving the exchange of fiat money only.

Contrary to the US, China explicitly banned exchange or financing activities between banknotes and “coin substitution” in 2017. This can be seen from the announcement of the People's Bank of China (“PBoC”) and five other ministries, that financing uses cryptocurrencies.​​ 

A series of Indonesian policies towards cryptocurrencies to date seem skeptical. First, BI Regulation Number 19/12/PBI/2017 which prohibits fintech from processing payment transactions using virtual currencies, hit hard the entire virtual currency ecosystem in Indonesia. Second, the Financial Supervisory Service Authority (OJK) and Bank Indonesia simultaneously officially appealed to the public not to own, acquire or trade cryptocurrencies. Third, as the price of Bitcoin has weakened significantly since then, there was no explicit attempt by the Government to adopt regulations governing activities with virtual currencies as part of the fintech industry. The decree resulted as Commodity Futures Trading Supervisory Agency Regulation Number 5 of 2019, It shows​​ that Indonesia considers cryptocurrency as crypto assets and classifies it as a commodity that can be used as the subject of futures contracts, Indonesia has now established a new regulation that explains that there are 229 types of crypto that can be traded on the physical market for crypto assets. ​​ In other words, at this point in its development, Indonesia does not accommodate the basic principles of global policy but is simply sticking to piecemeal regulations while avoiding the hard work of successfully creating a clear regulatory approach to this challenging subject.​​ 

 

 

1

​​ Komarraju, A, 2021,​​ 5 Promising Cryptocurrencies That You Can Buy In May 2021, Analytics Insight,​​ https://www.analyticsinsight.net/5-promising-cryptocurrencies-that-you-can-buy-in-may-2021/, June 14th 2021.

2

​​ Rovella, D, 2021,​​ Bitcoin Bulls and Bears, Bloomberg,​​ https://www.bloomberg.com/features/bitcoin-bulls-bears/, June 14th 2021.​​ 

3

​​ O S Bolotaeva, A A Stepanova, S S Alekseeva, 2009, The Legal Nature of Cryptocurrency,​​ IOP​​ Conference​​ Series: Earth and Environmental Science, Vol. 272, (No. 3), ​​ Pg. 1.

4

​​ Campbell-Verduyn, M, 2018.​​ Bitcoin and beyond: Cryptocurrencies, blockchains, and global governance,​​ EconStor,​​ https://www.econstor.eu/handle/10419/181975, June 14th 2021.​​ 

5

​​ Conway, L, 2021,​​ The 10 Most Cryptocurrencies Other Than Bitcoin. investopedia.com, ​​ https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/, June 21th 2021.​​ 

6

​​ Rain Xie, 2019, Why China had to “Ban” Cryptocurrency but the U.S. did not: A Comparative Analysis of Regulations on Crypto-Markets Between the U.S.​​ and China’,​​ Washington University School Of Law,​​ Vol. 18 (No. 2), ​​ Pg. 457.

7

​​ Ibid,​​ Pg. 475.

8

​​ Soonpeel Edgar Chang, 2018, Legal Status of Virtual Currency in Indonesia in The Absence of Specific Regulations,​​ Indonesian Law Review, Vol. 8, (No. 3), Pg. 329.

9

​​ Ibid, Pg. 329.​​ 

10

​​ Ibid, Pg. 330.​​