Ever since 2008, when the first cryptocurrency Bitcoin was invented by the enigmatic Satoshi Nakamoto, cryptocurrency has been steadily growing in popularity. Nowadays, most people would have heard of cryptocurrency, Bitcoin, Dogecoin (popularized by Elon Musk), etc. However, it is likely that not many people understand what they are exactly, and how relevant they are to our daily lives. In this article, we touch on some basic legal issues regarding cryptocurrency usage in Malaysia.
‘Legal tender’ may seem like an abstract word, but it basically means a legally recognised payment method. Under Section 24 of the Central Bank Act 1958, notes and coins issued by the Central Bank of Malaysia (more commonly known as Bank Negara Malaysia, or BNM), shall be legal tender in Malaysia.
Despite being ‘coins’, cryptocurrency is not legal tender in Malaysia. For the avoidance of doubt, in January 2014, BNM had announced that Bitcoin is not legal tender due to its volatility. In fact, save for El Salvador, cryptocurrency has not yet been recognized as legal tender anywhere in the world.
However, as one may have deduced from our discussion around the first issue, cryptocurrency can be used in barters or trades. There are no laws prohibiting the exchange of services or assets for cryptocurrency in Malaysia. However, for this to work, both parties, the giver and the receiver of the cryptocurrency, must agree to the trade. Unlike legal tender, we have the choice to accept or refuse cryptocurrency as payment for whatever we offer.
In January 2018, a businessman in Sabah had secured a land deal using Bitcoin. However, in the same year, a Proton dealer was suspended by Proton Holdings because he had advertised to accept Bitcoin as payment.
There are already cryptocurrency payment gateways in Malaysia, like Coinbase Commerce, Bitpay and Cryptobilis, which accept cryptocurrencies as payment. There are also bitcoin ATMS in Kuala Lumpur. It is clear that cryptocurrency has value in the eyes of a growing population of people, but does it have value in law?
The case of Robert Ong Thien Cheng v Luno Pte in 2018 gives us an answer. The High Court stated that BNM recognizes cryptocurrency as something with value attached to it, “…the same way as value is attached to ‘shares’”. This is because Luna Pte, a crypto exchange, is registered with BNM as a reporting entity. Therefore, it was held that cryptocurrencies fall under the definition of ‘anything delivered’ under Section 73 of the Contracts Act 1950.
For context, Section 73 reads:
“73. Liability of person to whom money is paid, or thing delivered,by mistake or under coercion
A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.”
Yes. Cryptocurrency can be taxed in Malaysia under Section 3 of the Income Tax Act 1967.
However, the Act does not provide specific details, therefore there is no proper framework for taxes with regards to cryptocurrency. At the moment, the tax regulator approaches every situation on a case-to-case basis.
One may think that BNM would be in charge of monitoring something called a ‘currency’. However, that is not the case. In Malaysia, the Securities Commission Malaysia is the authority over cryptocurrency.
This is because the Securities Commission is a body entrusted with the responsibility to regulate and develop the Malaysian capital market. Established under the Securities Commission Act 1993, the Securities Commission is a powerful statutory body that can create and enforce rules and regulations with regards to the Malaysian capital market.
Cryptocurrency, or digital currency, is prescribed as a securities for the purposes of securities law. This means that cryptocurrencies exchanges would technically be classified as stock markets under the Capital Markets and Services Act 2007 (CMSA).
This is why the Securities Commission regulates cryptocurrency, and why, if you are interested to deal further with cryptocurrencies, the Securities Commission is the main body to look to.
However, it is advisable to only trade on exchanges registered with the Securities Commission.
You may only operate an exchange if you are registered under the Securities Commission as a digital asset exchange (DAX) operator. Otherwise, it is an offence under securities laws to operate a DAX. If convicted, a person may be liable to a fine not exceeding RM10 million or imprisonment for a term not exceeding 10 years, or both.
Registered DAX operators are required to comply with strict regulations imposed by the Securities Commission, which ensures proper safeguards to protect investors’ interest and reduce risks related to cyber-security, money laundering, and terrorism financing.