Thailand’s Banks Can Now Open Subsidiaries to Invest in Cryptocurrencies

  • Bank of Thailand (BoT) has now allowed local banks to open subsidiaries for investing in cryptocurrencies.
  • Subsidiaries may also offer brokerage services to crypto dealers.

The Bank of Thailand (BoT), the country’s central bank, reportedly gave all local financial institutions permission to launch subsidiaries, which may offer certain types of banking services to cryptocurrency investors.

Thailand’s banks will now be able to offer brokerage services to crypto-related companies, invest in crypto and blockchain startups, or even operate their own crypto business, according to a recent announcement by the BoT.

Subsidiaries May Issue Cryptos

The banks’ subsidiaries may also issue their own digital currency, the announcement noted. However, Thailand’s central bank will still not let local financial institutions directly offer banking services to individuals and organizations dealing in cryptocurrencies.

While local banks in the country have been allowed to establish subsidiaries for certain types of crypto-related activities, they are strictly prohibited from providing their own special services or investment schemes involving digital currencies. Local banks and their licensed subsidiaries are also not allowed to buy, sell, or trade cryptocurrencies on behalf of their customers.

Thailand’s financial institutions may, however, recommend approved sources for investment advice on digital assets. Banks can also conduct an initial coin offering (ICO), but it should be geared towards “financial innovation”, which aims to enhance existing financial services. The ICO must also adhere to guidelines outlined in BoT’s regulatory sandbox.

Moreover, Thailand’s banks may only work with crypto firms regulated by the country’s Securities and Exchange Commission (Thailand’s SEC) and the Office of Insurance Commission (OIC).

In February, the BoT issued a circular instructing local banks not to trade or invest in crypto assets. Per the circular, financial institutions were prohibited from operating crypto exchanges, although independent digital currency exchanges could legally be established in Thailand after completing a registration process.

Cryptocurrencies Are Securities

Cryptocurrency purchases with credit cards were also banned by Thailand’s authorities, and in May, cryptos were classified as “digital assets or digital tokens.” This means they are considered securities and must be regulated by the Thai SEC.

Notably, in June, the BoT announced it was experimenting with a “new way of conducting interbank settlement” which could be implemented with a central bank-issued digital currency (CBDC). The reserve bank had said a CBDC could make it more efficient to process payments because it would require “less intermediation...compared to traditional systems.”

Recently in July, Thailand’s government released a comprehensive regulatory framework for ICOs, making it one of the first countries in the world to provide legal support for the controversial crowdfunding method.

Based on these developments, it appears authorities in Thailand are receptive to the evolving cryptocurrency market, but also seem to be looking to protect local firms and individual investors from risky and potentially fraudulent schemes.

Unregulated Crypto Derivatives Exchanges Dominate Regulated Alternatives

Trading volume on unregulated Bitcoin (BTC) derivatives exchanges is growing rapidly, and continuing to far outpace their regulated-institutional counterparts, according to the most recent (March) CryptoCompare Exchange Review.

unregulated exchange volume(source: CryptoCompare)

Both OKEx and bitFlyer exchanges hosted an average daily derivative trading volume worth well over a billion dollars during March - $1.5 billion and $1.14 billion respectively according to CryptoCompare. It seems then that the older derivative stalwart BitMEX, at $645 million daily average volume, has been rapidly eclipsed by the newer exchanges.

regulated exchange volume(source: CryptoCompare)

Institutional, fiat-dealing (regulated) exchanges hosted a fraction of this volume, the highest being $70.5 million on the CME exchange. CryptoGlobe reported last month the CME’s primary competitor, the CBOE, was shuttering its Bitcoin futures products citing low demand. CME volume spiked last month, but is down this month below to January levels.

However, despite the relatively low average volume, the CME did have one bumper day of record-breaking Bitcoin futures trading volume, trading nearly $550 million worth of bitcoin on April 4th - days after Bitcoin’s unbelievable breakout from its $4,200 resistance.

Outflanked

The ease of onboarding new customers may explain why the unregulated exchanges get more attention.

In a recent interview, BitMEX CEO Arthur Hayes underlined his exchange’s ability to “onboard a [new] customer within 10 minutes,” by accepting Bitcoin and only Bitcoin for funding. In addition, no KYC/AML checks are required to trade on BitMEX, merely an email address; whereas OKEx offers margin trading only after basic KYC/AML checks. These exchanges are registered in Seychelles and Malta, respectively, specifically to avoid such onerous accounting requirements for their customers.

As CryptoGlobe covered early in 2019, however, BitMEX and other derivative exchanges including OKEx officially exclude certain citizens from trading on their platforms due to regulatory concerns, most notably US citizens.

Hayes also intimated at the upcoming launch of an interest bearing Bitcoin-only bond, which he speculated could be used to leverage credit into future Bitcoin-denominated economic activity.