Web3 Goes Global: Interpreting Malaysia's Virtual Currency Regulatory Policies
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Web3 Goes Global: Interpreting Malaysia's Virtual Currency Regulatory Policies
The Malaysian government will maintain a long-term friendly stance toward cryptocurrency and blockchain, and intends to position itself as a cryptocurrency hub in Asia.
Navigating Web3 tides with focused insightsBy Meng Xin
Malaysia boasts a robust and diverse economy with low inflation, making its fiat currency one of the most stable globally. Currently, Malaysia maintains a favorable regulatory environment toward cryptocurrencies, allowing trading in approved digital assets. However, cryptocurrency exchanges must comply with regulations set by the Securities Commission Malaysia (SC) and adhere to local laws.
From a policy perspective, Malaysia aims to position itself as a cryptocurrency hub in Asia, challenging Hong Kong and Singapore’s dominance in the space. The country is steadily expanding its ecosystem of venture capital firms and Web3 startups, with CoinGecko standing out as a notable success story.
In terms of legal environment, Malaysia's appeal in the crypto sector stems from factors such as its common law court system, high English proficiency, and well-established regulatory framework. Key advantages—including the absence of capital gains tax on cryptocurrencies, a highly educated workforce, and widespread use of English—enhance Malaysia’s overall attractiveness.
The Evolution of Cryptocurrency Legal Policies in Malaysia
In Malaysia, cryptocurrencies are legal. The government has established relevant laws and regulations to ensure stability and transparency in the cryptocurrency market. However, as an emerging market, regulators continue to work toward understanding and keeping pace with cryptocurrency developments, implementing measures to protect investors from potential risks.
In Malaysia, cryptocurrencies are recognized as property—a fundamental legal concept, since property can be owned and confers enforceable rights worldwide. Under Section 3 of Malaysia’s Civil Law Act 1956, English common law has long served as a precedent in Malaysian courts. Therefore, examining the stance of UK courts is meaningful. In October 2018, a Malaysian court handled a case involving cryptocurrencies. It ruled that although cryptocurrencies are not legal tender in the country, cryptocurrency transactions are not illegal. Most importantly, the court classified cryptocurrencies as goods, noting that they are purchased using fiat currency and their value is assessed similarly to shares.
In 2019, Malaysia enacted the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, bringing cryptocurrencies (also known as digital currencies) under regulatory oversight. According to this order, all digital currencies and tokens meeting its criteria are deemed securities under Malaysia’s securities laws. Nevertheless, the Securities Commission Malaysia (SC) has clearly stated that digital currencies and tokens are neither legal tender nor payment instruments regulated by BNM (Bank Negara Malaysia, or “BNM” for short).
Following the 2019 order, SC issued the 2020 Digital Asset Guidelines, effective October 28, 2020. These guidelines outline requirements related to fundraising through digital token issuance, the operation of initial exchange offerings, and custodial services for digital assets. The 2020 guidelines allow SC to grant exemptions from certain requirements upon application, providing regulatory flexibility.
In January 2021, SC revised the 2015 Recognized Market Operator (RMO) Guidelines, introducing new requirements for electronic platforms facilitating digital asset trading.
SC has approved trading of crypto assets including BTC, ETH, AVAX, and MATIC.
Tax Policy on Cryptocurrency Trading in Malaysia
In Malaysia, due to the absence of capital gains tax, cryptocurrency transactions—including selling or using cryptocurrencies—are generally tax-exempt.
However, active cryptocurrency trading may classify individuals as day traders, subjecting them to income tax ranging from 3% to 30%, depending on income levels. To be considered a day trader, certain criteria must be met, such as high transaction volume, short holding periods, frequent trading, efforts to enhance market liquidity, and commercial intent. Individuals must provide evidence to LHDN (Inland Revenue Board of Malaysia) demonstrating that they hold cryptocurrencies for investment purposes rather than trading, in order to avoid taxation.
Recommendations for Future Investors
The potential development and changes in Malaysia’s cryptocurrency regulatory environment remain uncertain. The Securities Commission Malaysia (SCM) and Bank Negara Malaysia (BNM) have not yet issued official regulations regarding cryptocurrency trading and investment activities. Currently, cryptocurrency exchanges are governed by existing anti-money laundering and counter-terrorism financing laws, as well as some voluntary codes of conduct established by industry bodies like ACCESS Malaysia.
As cryptocurrencies gain increasing global popularity, both SCM and BNM are likely to develop formal domestic regulatory policies. Such developments could restrict certain aspects of trading activities or introduce new taxes on crypto transactions. However, the Malaysian government views cryptocurrencies and blockchain technology as having significant potential to drive domestic economic development: “The Ministry of Finance sees digital assets and their underlying blockchain technology as enablers of innovation across traditional and emerging industries. In particular, we believe digital assets can serve as alternative fundraising channels for entrepreneurs and new businesses, as well as alternative asset classes for investors.”
Therefore, the Malaysian government is expected to maintain a long-term friendly stance toward cryptocurrencies and blockchain technology, with clear ambitions to establish the country as a leading cryptocurrency hub in Asia, challenging the central positions currently held by Hong Kong and Singapore.
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