The growth of cryptocurrencies, from a digital curiosity to a crucial component of the financial world, has spurred nations to actively address their impact. As Southeast Asia’s largest economy with a significant and increasingly internet-engaged population, Indonesia has followed a delicate balancing act when it comes to cryptocurrency regulation.
The country strives to harness the economic potential of digital currencies while mitigating the risks associated with their volatility and the nascent technology underpinning them.
This article focuses on Indonesia’s crypto regulation history, the current crypto landscape in the country, the role of regulatory bodies, the legal status of crypto, the licensing process, and the future outlook regarding crypto regulations in Indonesia.
Indonesia’s crypto regulation history
A pivotal moment in Indonesia’s crypto history occurred in 2017 when Bank Indonesia (BI), the country’s central bank, issued a statement prohibiting the use of cryptocurrencies as a means of payment. This move underscored the government’s concern over cryptocurrencies’ potential to disrupt the existing financial order and highlighted security, volatility and regulatory oversight issues.
However, the narrative shifted in 2018 when the Commodity Futures Trading Regulatory Agency (Bappebti), which is under the Ministry of Trade, officially classified cryptocurrencies as commodities. This classification allowed for the legal trading of digital assets on futures exchanges provided that these exchanges and the assets traded on them adhered to strict regulatory requirements designed to protect investors and ensure market integrity.
A year later, in Feb 2019, Bappebti further solidified the crypto regulatory framework by releasing trading rules for crypto exchanges in the country.
Crypto landscape in Indonesia in 2024
Indonesia’s crypto ecosystem is currently guided by the concerted efforts of the Indonesian Financial Services Authority (OJK) and Bank Indonesia. These institutions are instrumental in devising a regulatory environment prioritizing the safety, transparency and protection of investors engaging with cryptocurrencies.
At the heart of the regulatory framework are several key pieces of legislation that define the operational boundaries for cryptocurrency trading and investment in the country. Bappebti Regulation No. 8/2021, later amended by Bappebti Regulation No. 13 of 2022, sets forth comprehensive guidelines for trading crypto assets on commodity exchanges.
This legislation was further expanded by Bappebti Regulation No. 4 of 2023, which widened the spectrum of tradable crypto assets, marking a progressive step toward inclusivity in the crypto market.
The Financial Omnibus Law (Law No. 4 of 2023) added another layer to existing laws. A critical component of this law is the transition of regulatory authority from Bappebti to the OJK. Scheduled to take effect by Jan. 12, 2025, this shift represents a pivotal change in oversight, moving toward a more unified regulatory approach under OJK.
Who regulates cryptocurrencies in Indonesia?
Two principal regulators stand at the helm of oversight and governance of cryptocurrencies in Indonesia: Bank Indonesia and the Financial Services Authority, known locally as OJK. These entities are pivotal in shaping the country’s financial and banking sectors, including the burgeoning cryptocurrency industry.
Bank Indonesia
Serving as the nation’s central bank, BI is responsible for the macro-supervision across the banking and financial services industries. Its purview extends to regulating monetary policies and payment system services, encompassing both prudential and conduct oversight.
This includes a significant responsibility for regulating major payment system providers like Visa and Mastercard, ensuring the stability and integrity of Indonesia’s monetary and payment landscapes.
Financial Services Authority
Carved out in 2011 from BI’s previous supervisory functions, OJK is responsible for directly supervising and regulating a broad spectrum of financial institutions. This transition was aimed at enhancing the protection of consumers within the financial services sector while ensuring robust oversight of banks, insurers, investment firms and non-bank financial institutions. Beyond traditional entities, OJK’s regulatory scope expanded to include fintech companies, notably those operating in spaces like peer-to-peer lending.
While BI focuses on the macroeconomic aspects and the overall health of the financial system, OJK dives into the granular supervision of financial entities and market conduct. Together, they form a comprehensive regulatory framework that safeguards the interests of consumers and investors while fostering a stable, transparent and inclusive financial environment.
Legal status of cryptocurrencies in Indonesia
The legal status of cryptocurrencies in Indonesia has taken a clear shape, with digital assets being officially recognized as commodities. This significant classification by the Bappebti legitimizes cryptocurrencies and sets a structured regulatory framework for their trade on futures exchanges.
Customer due diligence
During the onboarding process, Indonesian regulations require crypto-related enterprises to gather and authenticate customer information while evaluating associated risks. Mandatory submission of a few details is required:
Cryptocurrency licensing process and compliance mandates in Indonesia
In mid-July 2023, a landmark decision saw Bappebti issuing licenses to crypto asset futures exchanges, futures clearing houses for guaranteeing and settlement of crypto asset physical market trades and crypto asset storage managers (depository). This was pivotal in institutionalizing crypto asset transactions within the country’s financial ecosystem.
To operate legally within Indonesia, crypto entities must undergo a rigorous licensing process crafted to vet the operational, financial and security frameworks of the platforms. Bappebti, in concert with the impending oversight by the OJK, stipulates that futures exchanges involved in crypto asset trading fortify their foundations with significant paid-up capital and adhere to strict equity standards. This ensures that only entities with a robust operational backbone and financial solvency can participate in the market, thus safeguarding investor interests.
How to buy crypto in Indonesia?
The regulatory regime in Indonesia requires users to complete a Know Your Customer (KYC) process using their passport, national identity card or driver’s license before they are allowed to buy crypto.
The first step usually is to create an account with an exchange. Prominent global exchanges such as Coinbase and Binance are available in Indonesia. Additionally, Indonesian crypto exchanges like Indodax and Tokocrypto also offer a variety of cryptocurrencies for trading purposes.
The user then completes the KYC verification process. Once the necessary approvals are completed, the user can make a fiat deposit using a bank account or credit card and buy cryptocurrencies.
Exchanges in Indonesia are usually interoperable with most Internet-enabled devices, such as desktops, laptops and mobile phones. Users may later withdraw funds to their personal hardware wallet or keep the funds in an exchange’s wallet, depending upon the desired level of security.
Is crypto taxed in Indonesia?
As crypto assets in Indonesia are treated as commodities, not currency, profits from crypto trading are subject to income tax (PPh) and value-added tax (VAT). The current income tax rate is 0.1%, and the VAT rate is 0.11% of the transaction value.
Indonesian crypto exchanges are legally required to collect PPh and VAT on cryptocurrency transactions. Exchanges withhold these taxes directly at the time of the transaction. When users sell or trade cryptocurrency, the applicable taxes are deducted from the proceeds before they are credited to their account. Also, it’s important to note that crypto-related losses cannot be used to offset gains from other sources.
Future outlook of crypto regulation in Indonesia
The Indonesian cryptocurrency market has experienced a notable surge, with crypto transactions reaching $1.92 billion in February 2024 alone. This growth underscores the increasing interest of the Indonesian populace in cryptocurrencies and signals the potential for further regulatory enhancements to support this growth.
Looking ahead, the OJK is set to play a pivotal role in shaping the landscape of financial innovation. Starting January 2025, new regulations introduced by the OJK will extend to cryptocurrencies. This strategic move reflects authorities’ recognition of the cryptocurrency sector’s rapid advancements and evolving business models.
By aligning regulatory frameworks with technological innovation, Indonesia aims to set a progressive course for the future of crypto regulations in the nation.
Written by Dilip Kumar Patairya