Our Immediate Reaction Regarding the SEC Ban of Cryptocurrencies as Means of Payment in Thailand
The news so dreaded by the Thai cryptocurrency market has fallen. The Securities and Exchange Commission (SEC), the regulatory body having oversight on cryptocurrencies in the Kingdom, said that the use of digital assets as a means of payment is banned from 1st April 2022. If the SEC did not have a reputation as a serious organization, the announcement would sound like an April's Fool joke! But no, it's very serious and the consequences can be significant for the digital assets business operation industry.
What to make of this new SEC ban?
Contradiction and Antagonism
The SEC decision contradicts the crypto-friendly image that the Thai Government has created since 2018, four years before leading economies (the U.S. and the E.U.) figured out that cryptocurrencies regulation must be addressed as a matter of emergency for innovation, economy, and society. Why the sudden U-Turn? What really caused the change of heart? Is there any motivation behind the official narrative?
The main concerns cited by the SEC to justify the ban are:
- Threat to financial stability
- Money laundering
The Decision is the Result of the SEC and BOT Public Hearing on Banning Cryptocurrencies as Means of Payment
BOT and SEC opened a public hearing from 25th January to 8th February on the issues of regulating the use of digital assets as means of payment in Thailand.
As a contributor to the hearing, we had the privilege to submit a note emphasizing the benefits of innovation for Thailand. We advocated that the emergence of a new digital asset class and a vibrant economy around cryptocurrencies should supersede the fear of the traditional banking and finance sector, of losing control and power over money creation and financial services.
More specifically, we suggested to the Thai regulators that while the power of the BOT over monetary policies shall be maintained, a distinction must be made between digital assets that allow payments of goods and services ("Cryptocurrencies") and digital assets that are only used as rights, obligations, and titles ("Digital tokens").
Moreover, the legal nature of NFTs must be categorized as "collectibles" to avoid confusion with other digital asset classes that may allow payment. In addition, because of the decentralized nature of the blockchain, it is impossible for any government in the world to ban swaps of tokens, and collectibles on Decentralized Exchanges (DeX).
Obviously, our recommendations were not taken into consideration for the final determination.
Interestingly, the cryptocurrency market has not reacted negatively to the SEC ban. The positive sentiment has not changed and there was no "FUD". Indeed at the time of writing, the crypto market cap has increased by 2.65% reaching almost 2 trillion USD. Bitcoin (BTC) found support at 43.150 USD (up 2.35%).
From our perspective, the SEC ban raises fundamental legal and policy issues!
- The first problem is that the regulation directly antagonizes the Emergency Decree On Digital on Digital Assets Business Operation B.E. 2561 (2018) that legalizes the use of cryptos as a means of payment and assets. The question now is how can the SEC regulation go against the Royal Decree, thus the Constitution?
- The second problem is the obvious contradiction with the "Thailand 4.0" Policy, which was unveiled in 2006, as a 20 years national strategy to radically transform the economy, lift the majority of Thai people out of poverty by embracing, among other things, digital transformation, including digital technology, infrastructure, and business.
Can the SEC regulation antagonize such a forward-thinking policy that was validated by a Royal Decree? What could be the legal implications as far as the principles of legality and hierarchy of norms are concerned?
Law Makers and Regulators Fear Uncertainty and Doubt ("FUD")
FUD does not only apply to the stock and crypto markets. Law-makers and regulators are also affected in different ways. For that matter, the SEC regulation reveals that the fear to lose power and control has prevailed over the overall liberal and progressive policy and the friendly legal framework that has been applied to the crypto space in Thailand since 2018.
Possible External Influences
The SEC move appears to be very close to the current state of cryptocurrencies regulation in America where the U.S. SEC is using a very controversial "regulation by enforcement" to hold back and control innovative payment solutions that challenge the legacy system. The SEC vs. Ripple case has become notorious for that matter.
There are speculations about a collaboration between the Thai SEC and the U.S. SEC or at least the Federal Reserve (FED) and the Treasury on coordination of policies on foreign exchange issues that could affect monetary and financial stability in both countries.
It is also known that the financial industry in general and the U.S. banking and the financial sectors, in particular, have been lobbying heavily U.S. regulators against the cryptocurrency industry and the DeFi sectors because the crypto adoption of the public is growing at a pace that is perceived by the guardians of the established system, as a threat.
In other words, there is a worry that with decentralization, traditional banks and financial services will soon become obsolete! Is this existential fear justified?
A trade-off or balance can be established! This is possible if the traditional financial system gets the right education and engages in a constructive conversation, to understand how to embrace the disruption brought by blockchain technology!
Other Unknown Reasons Justifying the Ban
There is also the possibility that other reasons not revealed to the public have prompted the SEC regulation to ban the use of digital assets as means of payment. Indeed, macro-economic considerations may create a difficult situation affecting the Thai Bath. As a result, the BOT and the SEC may have taken coordinated action for the stability of Thai baht that the public may not be aware of.
Conflict of Jurisdiction and Anti-Constitutionality of the Ban?
Thailand is a country of traditions where litigation is not encouraged, especially when it is directed against government agencies to seek redress (administrative litigation). Nevertheless, motivated digital assets business operators assisted by specialized and audacious crypto regulation lawyers or interest groups have sufficient legal grounds to bring down the SEC ban, based on conflict of jurisdiction between the SEC and the BOT, or anti-constitutionality claims. Indeed, technically, matters related to currencies, ie., payment of goods and services are under the jurisdiction of the BOT.
The SEC can claim power and jurisdiction only if cryptocurrencies are qualified as securities, which is not (yet) the case in Thailand.
The Way Forward
It is believed that with a better understanding of the benefits of blockchain and innovation for the digital economy and society and in light of the extraordinary dynamics and creativity of the crypto industry in Thailand, the SEC ban may not last long.
Thai regulators are notorious for their ability to reconsider prohibitions and to adapt to the best interest or pressures of the Thai economy and society.
Moreover, we doubt that the Thai government will risk losing the current attractiveness and desirability of Thailand as an investment hub for the emerging blockchain and digital assets industry in Southeast Asia.
Past bans by the BOT regarding cryptocurrency did not last long! The crypto space in Thailand knows very well, how to "dance" with the SEC or the BOT prohibitions.