Demand for new ways of value storage is often connected to economic happenings and citizens taking matters into their own hands. In recent years, many people have been turning to cryptocurrency to find solutions to the current flawed financial system. According to blockchain analytics firm Chainalysis, emerging markets are consistently at the forefront of global crypto adoption. But does this mean crypto adoption is proving to be more successful in emerging markets and if so, why? And how exactly can crypto adoption offer real, long-lasting solutions?

Financial Inclusion in Vietnam: An Overview

In the Southeast Asian country of Vietnam, more than 60% of the 99 million population is unbanked, according to data from UK research platform Merchant Machine. The majority of daily transactions in the Southeast Asian country are made in cash. According to the FIS Global Payments Report, the number of cash transactions stood at around 58% as of 2021. Many people are underserved by traditional financial institutions or unable to access or even create a bank account. Minimum balance requirements for bank accounts and service fees were often barriers for people living in poverty. Lack of official forms of identification or significant distance to financial institutions or banks were also often cited as a disadvantage. Even though the general poverty rate has plunged to 2.23% as of 2022, the World Bank estimates that over 61% of the country’s population lives in rural areas, where access to modern banking services is limited. That being said, Vietnam currently has 61.3 million mobile phone users, ranking among the top 10 countries with the largest number of smartphone users worldwide. The extensive development of 4G infrastructure, availability of widespread internet technology and mobile phone subscriptions are essential to continue to lay a foundation for financial inclusion and digital transactions across the country.

In 2020, Prime minister Nguyen Xuan Phuc published a strategy for financial inclusion focused on ensuring all citizens and businesses have access to financial products and services in a convenient way and at affordable prices, particularly with focus on including low-income and vulnerable citizens living in rural areas. Financial inclusion and providing education on how to use financial services are crucial for strong economic development. And with Vietnam heading towards being the fastest-growing economy in the ASEAN region in 2022, financial inclusion can no doubt help support a flourishing economy. The Standard Chartered Bank gave a positive forecast for Vietnam’s GDP growth in 2022 at 7.5% and around 7.2% in 2023. The consistent period of economic growth is not positively impacting citizens equally though. According to Oxfam, the wealthiest man in Vietnam earns more daily than the poorest Vietnamese individuals make in 10 years (oxfam.org). Vietnam needs to not just focus on raising minimum living standards and tackling poverty but also look at creating new sustainable economic pathways based on digitalisation, financial inclusion and equality.

Cryptocurrency Adoption in Emerging Markets

Emerging markets are consistently at the forefront of global crypto adoption. “One reason for this could be the value that users in emerging markets get from cryptocurrency. These countries dominate the adoption index, in large part because cryptocurrency provides unique, tangible benefits to people living in unstable economic conditions,” the Global Adoption Report states (coindesk.com). Kim Grauer, Director of Research at Chainalysis, further supports this research: “We found that a lot of people simply don’t have the same level of access to investments and instead turn to crypto offerings. We see that a lot in places like India and Vietnam, where there’s a young, tech-savvy population who are starting to have a disposable income” (forbes.com). Cryptocurrencies are seen by many as a safe haven, especially in periods of economic pressure. Despite weaker public sentiment on cryptocurrencies in the current bear market, demand has remained resilient in emerging economies.

For the second consecutive year, Vietnam ranked at the top of the list of the Cryptocurrency Adoption Index. The country shows exceptionally high purchasing power and population-adjusted adoption overall. Kim Grauer states the popularity in Southeast Asia largely can be attributed to play-to-earn, blockchain-based games. A well-known example was Vietnam’s own Axie Infinity game, headquartered in Ho Chi Minh City. It attracted gamers with NFT rewards and led to the creation of organisations that would pay for the cost of playing in exchange for a cut of players’ winnings. An estimated 23% of Vietnamese citizens have played a play-to-earn game before. Axie Infinity collapsed earlier this year after it got hacked for over $600 million, but this didn’t stop the hype. Players — especially in emerging markets — are consistent in using play-to-earn games as a source of income and many of those game developers are based in Southeast Asia. Another reason for the high cryptocurrency adoption is Vietnam’s massive international money transfer market, with many sending money from abroad back home to their families, previously connected to high fees. Cryptocurrencies — especially stablecoins — help bridge the gap in cases where recipients don’t have access to traditional banking channels and money transfer services often charge outrageous fees.

Cryptocurrency in Vietnam Today

The cryptocurrency industry in Vietnam is rapidly gaining momentum. The country is seeing the highest crypto adoption rate in the world, yet the Vietnamese government does not currently recognise cryptocurrencies as legal tender. Huy Nguyen, vice chairman of the Vietnam Blockchain Association, states: “Virtual assets currently operate in a regulatory grey zone” (coindesk.com). Tax authorities lack the mandate to designate digital currencies as taxable assets, meaning that, as of right now, there are no cryptocurrency taxes in the country. Financial institutions in Vietnam are barred from handling digital currencies, but citizens are allowed to own and trade them. With no crypto taxes, many see cryptocurrencies as lucrative investments and are interested in the benefits blockchain technology can bring. As mentioned above, play-to-earn games and cheap money transfers are of interest to many as they explore digital pathways to financial inclusion and financial freedom. That being said, Vietnamese law does not protect crypto users in the event of scams or losses and thus digital currencies can not be used legally in trade relationships.

Despite no current regulations, the Government has taken initial but essential steps to adopt blockchain technology. In July 2021, prime minister Pham Minj Chính issued a statement to the State Bank Of Vietnam, asking to explore the benefits of digital currencies and potentially draft regulations, including tax and user protection guidelines. Lawmakers have since been putting pressure on the prime minister, as well as on the governor of the State Bank of Vietnam and the country’s central bank, to clarify their stance toward virtual assets and blockchain technology. The State Bank has until 2023 to decide on the benefits and downsides of cryptocurrencies and develop policy recommendations. Businesses are interested in cryptocurrency development in Vietnam as well. In March 2022, cryptocurrency exchange AEX launched a $100 million fund to support Vietnam’s blockchain ecosystem. A few months later, the Vietnam Blockchain Association and Binance started a cooperation focusing on the research and application of blockchain technology and human resource training. Crypto adoption in Vietnam is set to continue to rise as more businesses and citizens discover the benefits and convenience of digital assets. We are excited to see how regulations can further promote cryptocurrency adoption and the benefits it will continue to bring to Vietnamese citizens and businesses alike.

~By Tina~