As the top-ranked country on Chainalysis' Global Crypto Adoption Index (1) for the past two years, Vietnam is among the top countries for embracing cryptocurrency. Chainalysis's research technique considered population-adjusted adoption in cryptocurrency systems, including centralized exchanges and peer-to-peer P2P payment networks.
Vietnam's high adoption rate is a rare phenomenon. According to an analysis of web traffic for key crypto networks that identified the nations with the highest interest rates and adoption percentages, the country's highs have also been questioned. While several factors contribute to Vietnam's high adoption rate, one of them is the absence of cryptocurrency taxes there (2), in contrast to the United States, India (3), and other developed nations where cryptocurrency holdings are subject to taxation.
As the Vietnamese tax authorities have shown an interest in taxing cryptocurrencies but lack the authority to classify them as taxable assets, the Vietnamese government does not accept cryptocurrencies as legal money. The taxation of cryptocurrencies is also completely unregulated under Vietnamese law, and while local financial institutions are not permitted to handle them, citizens are free to own and trade cryptocurrencies.
A drawback of adopting digital currencies is that Vietnamese law does not protect users in the event of scams or losses because such cryptocurrencies cannot be used legally in trade relationships. The lack of crypto taxes made digital currencies ideal as investment instruments, which led to their adoption.
The prime minister of the country, Pham Minh Chính (4), urged the State Bank of Vietnam to investigate the advantages and disadvantages of virtual currencies to develop rules, and the State Bank of Vietnam is now working on elaborating crypto usage guidelines as a result.
The organization will also probably propose several measures, such as tax and user protection standards. According to Gracy Chen (5), managing director of cryptocurrency exchange Bitget, clear and strong laws would enable institutional investors in the nation to begin dealing in cryptocurrencies, which would also be a huge win for the industry.
As soon as the regulation is released, it will immediately affect trading on local fiat exchanges. However, clear regulations may encourage wider adoption in the long run and lay the groundwork for increased retail and institutional engagement. A better-regulated market will offer greater protection and increase investor trust, proving that the benefits outweigh the drawbacks.
While many Vietnamese only have limited access to basic financial services, 60% of the population lacks access to conventional banking services, according to a 2021 Statista study (6), which places Vietnam second among the top 10 unbanked nations. According to the World Bank, more than 61% of the nation's population lives in rural areas with limited access to modern banking services. Cryptocurrency networks are swiftly filling this hole.
Vietnamese cryptocurrency investors interested in getting credit for investing in cryptocurrencies have shown a strong interest in revolutionary blockchain concepts like decentralized finance (DeFi). "DeFi" is a shorthand for blockchain-based financial networks that offer services similar to banks.
As users may earn interest on their money, lend and borrow money, and trade cryptocurrency derivatives on DeFi platforms, investors can protect their investments by utilizing DeFi insurance without filling out any paperwork. This makes it convenient for unbanked Vietnamese people, especially those who are growing their cryptocurrency assets and generating passive income.
According to the 2021 Chainalysis Global DeFi Adoption Index report (7), Vietnam is ranked second among the countries with the largest DeFi adoption globally. Vietnamese citizens abroad contributed over $18 billion in remittances home in 2021, breaking the previous record and making Vietnam the seventh greatest recipient of remittances worldwide.
This was a 3% increase from the $17.2 billion reported in 2022, and for Vietnamese who frequently remit money to their families in Vietnam, the transfer fees are frequently exorbitant. Surcharges typically include administrative fees and exchange rates, and according to World Bank statistics (8), the average remittance cost to Vietnam as of 2020 was about 7%.
Due to exorbitant rates and the unbanked population's lack of access to traditional money transfer services, cryptocurrency transfers have been a popular choice for Vietnamese expatriates seeking to assist and support their families back home.
Although transaction costs exist on blockchains as well, they frequently pale compared to those charged by remittance networks because they are P2P and do not rely on middlemen to complete transactions. In addition, GameFi, a brand for blockchain games with financial incentives, uses cutting-edge economic models that let players receive rewards for winning games in the form of cryptocurrencies and non-fungible tokens (NFTs).
Since cryptocurrencies are at the core of GameFi ecosystems, many gamers have now modified how they operate as part of the gameplay to open up new adoption opportunities. Around 75% of GameFi cryptocurrency investors started investing in digital currencies after joining the GameFi platform, according to August Chainplay's State of GameFi 2022 report.
In particular, play-to-earn P2E games have become incredibly popular in Vietnam and have significantly contributed to the adoption of cryptocurrencies there. According to Finder's 2021 study report, 23% of Vietnamese respondents have played P2E games at some point in their lives.
As a result of the pervasive NFT gaming culture and its role in promoting cryptocurrency adoption, many GameFi startups have established themselves in Vietnam. Notably, Axie Infinity (9) also has Vietnamese roots. According to data from Google, Sensor Tower, and Data.ai, Vietnam ranks #1 in Southeast Asia for generating applications and games in shops like the Apple Store and Google Play, which is why both sectors are booming.
These two variables are closely related and have led to a tremendous uptake of cryptocurrencies in Vietnam. People have historically preferred utilizing national currencies like the US Dollar during economic upheaval and hyperinflation. While Vietnamese citizens have also been assembling assets like gold in recent years to protect against inflation,
While Vietnamese individuals had 400 tons of gold in the past decade, the development of cryptocurrencies has not encouraged more Vietnamese citizens to use them as a hedge against inflation in place of tangible assets like gold.
Due to the fickle nature of virtual currencies, the Vietnamese central bank has urged individuals and institutions to refrain from dealing with them. However, as confidence in the Vietnamese dong has declined, more Vietnamese investors are turning to digital currencies. According to Statista data, Bitcoin is the most widely used cryptocurrency in the nation and is frequently utilized by investors as a hedge against inflation.
According to the survey, 84.5% of Vietnamese are interested in searching for the top cryptocurrency. As more Vietnamese people become aware of the benefits and opportunities offered by digital assets, the adoption of cryptocurrencies in Vietnam is expected to continue.
However, comprehensive restrictions seem to be a long way off. The State Bank of Vietnam has until 2023 to research the benefits and drawbacks of cryptocurrencies and make any necessary policy suggestions.