Analysis of Cryptocurrency Regulation and Market Status in Malaysia

I. Regulatory Framework

Malaysia adopts a "dual regulatory" model for Crypto Assets, primarily undertaken by Bank Negara Malaysia and the Securities Commission. The central bank is responsible for monetary policy and financial stability, and does not recognize privately issued digital coins as legal tender. The Securities Commission includes qualified Crypto Assets within the capital market regulatory framework and regulates them as securities products. Overall, Malaysia regulates Crypto Assets as a type of security/investment product rather than as currency.

The legal foundation of the regulatory system comes from the "2007 Capital Markets and Services Act ( Digital Currency and Digital Tokens as Securities ) Order" that came into effect in 2019. This decree grants the Securities Commission regulatory authority and stipulates that as long as the Crypto Assets meet certain investment attributes, they can be considered securities. Subsequently, the Securities Commission has issued several supporting regulations, including the "Guidelines for Recognized Market Operators" and the "Digital Asset Guidelines," which regulate the entry conditions for digital asset exchanges, initial exchange offerings, and digital asset custody services.

In terms of specific regulatory measures, Malaysia has set clear licensing thresholds. Digital asset trading platforms must register as recognized market operators and meet high standards of compliance, including local registration, minimum capital requirements, robust risk control mechanisms, anti-money laundering measures, and KYC processes. In addition, the Securities Commission has introduced a "Digital Asset Custodian" system, requiring institutions engaged in asset custody services to possess relevant licenses and ensure that client assets are stored independently, with clear records and risk isolation.

For wallet services, if they only provide decentralized software wallet functions, they are temporarily not included in the regulatory scope; however, if they also have fiat currency exchange or custody functions, they need to obtain the corresponding payment or custody qualifications. This differentiated treatment balances innovative development with controllable regulation.

II. Exchange Regulation and Market Landscape

By 2025, Malaysia will have a total of 6 licensed digital asset exchanges approved by the Securities Commission, including:

1. Luno Malaysia - The compliance platform with the highest market share, established in 2013, is one of the earliest licensed exchanges, supporting the trading of about 18 regulated coins.

2. SINEGY - A local exchange established in 2017, characterized by compliance and security, supporting fewer coins.

3. Tokenize Malaysia - Founded in 2017, operating in Malaysia, Singapore, Vietnam, etc., and received investment from local investment bank Kenanga.

4. MX Global - Established in 2018, a local trading platform, previously received investment from a certain trading platform, supports the trading of mainstream coins.

5. HATA Digital - Received principle approval in 2022, is the 5th licensed exchange, with independent USD market trading capabilities.

6. Torum International - Approved in 2024, it is the 6th licensed exchange, positioned as a "social + financial" platform, currently still in the pre-launch preparation stage.

These platforms are all recognized market operators and are connected to the local banking system, supporting deposits, withdrawals, and coin exchanges in Malaysian Ringgit, forming the foundation of a compliant digital asset service ecosystem in Malaysia.

According to the regulations of the Securities Commission, every type of digital asset listed on a licensed exchange must be approved. As of early 2025, 22 types of Crypto Assets have been approved for trading, covering mainstream coins, public chain coins, DeFi coins, and more. It is worth noting that no stablecoins or privacy coins have been approved for trading. This indicates that Malaysian regulators are taking a cautious approach to coin selection, focusing on controlling foreign exchange risks and money laundering risks.

3. Capital In and Out Mechanism and Foreign Exchange Control

Licensed exchanges in Malaysia generally support deposits and withdrawals in the local currency, the Malaysian Ringgit. Users can deposit fiat currency into their exchange accounts via local bank transfers and then exchange it for Crypto Assets; they can also sell their held Crypto Assets and withdraw the proceeds in Ringgit to their personal bank accounts. Most platforms do not charge fees for bank deposits, while withdrawals usually incur a nominal fee, making the overall threshold relatively low.

In addition, investors can also transfer compliant coins' Crypto Assets from their personal blockchain wallets to exchanges for trading, and after the transaction is completed, they can withdraw the assets to their blockchain wallets. This arrangement provides users with a two-way flow channel for fiat currency and digital assets. However, all funds entering and exiting must undergo real-name verification and anti-money laundering review procedures, especially for large or abnormal withdrawals, where the platform will implement additional scrutiny.

Malaysia has long implemented strict capital control policies, and since the 1998 Asian financial crisis, it has prohibited the trading of the ringgit in offshore markets. To prevent the formation of capital outflow channels through Crypto Assets, Malaysian regulatory authorities have implemented the following measures on exchanges:

• Only transactions priced in Ringgit are allowed: exchanges must not offer trading pairs priced in US dollars or other foreign currencies, nor are transactions in stablecoins permitted.
• Withdrawals are limited to local bank accounts: Fiat withdrawals must be transferred to the user's own local bank account, and transfers to third-party accounts are strictly prohibited.
• Crypto Assets withdrawal review: Although technically users are allowed to withdraw coins to personal wallets, the platform usually sets a delay or additional review process.

These designs effectively prevent Crypto Assets from becoming tools for fund transfers, making it difficult for investors to convert high-volatility coins like Bitcoin and Ethereum into foreign currency assets for forex transfers. The basic regulatory stance is: "Do not prohibit trading activities, but control cross-border uses."

IV. Fund Custody Model and Client Asset Protection

All licensed exchanges in Malaysia adopt a centralized custody trading model, meaning users need to deposit their assets into the platform's wallet or account for trading and cannot use personal on-chain wallets for direct matching or on-chain transactions. Under this model, the assets held by investors are custodied by the platform, and individuals can only view their balance and place orders through their platform accounts.

The platform must ensure strict segregation of customer assets and company assets, and implement appropriate cold wallet/multi-signature custody mechanisms. This requirement comes from the "Digital Asset Guidelines" and the "Customer Asset Protection Guidelines" established by the Securities Commission, aiming to prevent the platform from misappropriating user assets or causing asset losses.

The Malaysian Securities Commission has introduced a "Digital Asset Custodian" system, setting specific regulatory thresholds for institutions providing token custody services. As of the end of 2023, three institutions, including CoKeeps, have obtained principle approval as digital asset custodians.

Before the full implementation of the digital asset custodian mechanism, most platforms used third-party international custodians to manage digital assets:

• Luno Malaysia: Cooperates with BitGo to custody digital assets, while fiat funds are held by the local trust institution MTrustee.
• Tokenize: Asset custody is jointly executed by BitGo and Universal Trustee.
• SINEGY: also adopts an independent custody solution to ensure the independence of client assets.

The Securities Commission requires all licensed exchanges:

• Maintain a 1:1 reserve ratio, customer assets must not be used for other purposes.
• Implement regular asset audits and reserve proof report disclosures.
• The platform is prohibited from engaging in any form of customer asset lending or leveraged investment activities.

This system design, especially after the incident at a large global exchange, is of great significance for ensuring investor confidence. The Malaysian platform, due to assets being held in custody by a third party and the prohibition of misappropriating customer assets, has demonstrated stronger robustness and regulatory credibility during global market fluctuations.

5. Market Status and Platform Competitive Landscape

The cryptocurrency market in Malaysia has shown a steady growth trend in recent years. Although it started later, thanks to a clear regulatory framework and the increase in investor confidence, compliant exchanges have gradually established a local user base and operational scale. By the end of 2021, the annual trading volume of the national crypto market had reached approximately 21 billion ringgit. In 2022, the number of new digital asset trading accounts reached 128,000, comparable to the scale of account openings in the traditional securities market.

In terms of the competitive landscape of the platform, it presents a highly concentrated structure. Luno Malaysia, as the earliest approved exchange, has always been in an absolute leading position in the market. According to its publicly available data for 2024, the number of registered users on the platform has exceeded 1 million, with a total of over 72 million transactions and total managed assets reaching 4.28 billion ringgit. The annual trading volume has reached 87 billion ringgit, accounting for more than 90% of the entire licensed exchange market. Luno has advantages in terms of coin support, user experience, and compliant custody, firmly maintaining its market leader status.

The market share of other exchanges is relatively limited, but they also have their own characteristics and development paths:

• Tokenize Malaysia, backed by Kenanga's investment background, has a certain level of recognition among local traditional financial users and has launched some coins that Luno does not cover.
• MX Global has seen significant user growth after receiving investment from a large trading platform, becoming the fastest-growing platform after Luno since 2022.
• HATA Digital will begin testing in 2024, attracting the attention of professional users due to its USD trading area and external liquidity integration capabilities.

Overall, the compliant market in Malaysia is still dominated by Luno, while other platforms develop in a differentiated manner. Platforms like Tokenize, MX, SINEGY, and HATA have user numbers and trading volumes far lower than Luno, but they are vying for specific groups through different strategies.

From the perspective of investor profiling, retail users are predominant, with a noticeable trend towards younger demographics. Data from Luno indicates that the average age of its investors is 34.8 years, with males comprising 76% of the user base. The median deposit amount is 100 Ringgit, reflecting the typical retail market characteristics of "small amounts and frequent transactions." At the same time, the proportion of female users is increasing year by year, with a growth of 17% expected in 2024, indicating a continuous expansion of market acceptance. Luno also launched the "Luno Institutional" service in 2024, providing API, OTC liquidity, and professional custody, showcasing the platform's proactive efforts to expand into the high-net-worth and institutional market.

Market trading activity is closely related to international trends. After an event at a large global exchange in 2022, trading volume once declined, but driven by the rebound in Bitcoin prices and favorable ETF news in 2023, trading volume in the third quarter of 2023 increased by over 300% compared to the previous quarter. In 2024, Bitcoin first broke through $100,000, further boosting trading willingness and account opening enthusiasm.

The Securities Commission report indicates that investors under the age of 45 account for over 72% of licensed exchange accounts, reflecting that the market is primarily composed of digital native users. Events such as Worldcoin have also attracted widespread attention, demonstrating the market's high sensitivity to new tokens, airdrops, and innovative applications, highlighting the necessity to strengthen investor education in the future.

Overall, Malaysia's crypto market has established a trading ecosystem characterized by a high concentration of platforms and active trading, primarily driven by young retail investors, based on clear regulatory policies and platform compliance and safety. As the types of tokens gradually become more open and the compliance tool system improves, the market still holds further growth potential.

6. Usage Phenomena of Unlicensed Platforms and Regulatory Attitudes

Despite Malaysia's strict licensing system, some experienced investors still use overseas unregistered platforms, such as certain large international exchanges, in the real market. These platforms offer a wider range of trading coins, leverage tools, and financial derivatives, which are quite attractive to high-frequency traders and users seeking high returns. Many investors regard local licensed exchanges as "deposit and withdrawal channels," meaning that after trading and profiting through unregistered platforms, they transfer their assets to licensed platforms to convert them into Ringgit.

This phenomenon reflects the limitations of the local compliance market in terms of coin types, product varieties, and investment tools, and also exposes the contradiction between the globalization of the crypto industry and local regulations.

In response to the above situation, the Malaysian Securities Commission has taken a gradually escalating regulatory action, forming a systematic mechanism of restrictions and penalties:

1. Investor Warning List System: The Securities Commission maintains and publicly publishes an "Investor Warning List" that lists overseas platforms providing services to local users without registration. For example, several large international exchanges were listed as early as 2020-2021 and explicitly informed the public that "trading with these entities will not be protected by Malaysian law."

2. Formal Law Enforcement and Prohibition Order:

The Securities Commission has issued written orders and public condemnations to large platforms multiple times:

• July 2021: Ordered a certain large exchange to stop providing services to Malaysian users within 14 working days, shut down the website, App and marketing channels, and required the founder to personally ensure compliance.
• May 2023: Similar orders sent to another exchange