Malaysia Rises as the Invisible Force of Global Web3 Leadership

1. Introduction

Malaysia Blockchain Week is the country’s leading blockchain event. The most notable aspect is the active participation of regulators, who previously held a conservative stance towards the cryptocurrency industry, but are now engaging in constructive discussions on the industry’s development.

The government’s involvement signifies that Malaysia’s crypto ecosystem is moving towards institutional acceptance. The event connected diverse industry participants and expanded communication channels between the government and the private sector.

2. Malaysia Cryptocurrency Market: Three Keywords You Need to Know

The cryptocurrency market in Malaysia has three key characteristics: a melting pot of Southeast Asia, a breeding ground for global champions, and a center for Islamic finance in the world.

Malaysia is a multilingual country, with a population fluent in Malay, English, Mandarin, and Tamil. This diversity creates a natural blend of Eastern and Western cultures. Malaysia also has a strategic geographical location. From Kuala Lumpur, flights to major Southeast Asian cities such as Ho Chi Minh City, Bangkok, and Jakarta are all within two hours. This convenience makes collaboration across different cultures possible and accelerates business expansion.

These conditions cultivate talents with a global perspective. In addition to language skills, people also naturally develop cross-cultural understanding abilities. Although the Malaysian market is small, major cryptocurrency projects have originated here. Etherscan, Jupiter, Virtuals Protocol, and CoinGecko all started in Malaysia and now have a global impact.

Malaysia’s Islamic finance integration has created unique opportunities. Malaysia operates the world’s largest Islamic financial center, making Shariah compliance a mandatory requirement for cryptocurrency businesses. This requirement has fostered innovation rather than restriction. Malaysia was one of the first to recognize that cryptocurrencies comply with Shariah, launching a Shariah-compliant Bitcoin fund and enabling zakat payments in cryptocurrency. These developments link cryptocurrency to the global Islamic financial market, which is expected to reach $10 trillion by 2030.

3. The Evolution of Cryptocurrency Regulation in Malaysia

Phase 1: Establishing a Regulatory Framework for Digital Assets ( 2019-2020 )

Malaysia is one of the countries in Asia that has rapidly established a regulatory framework for digital assets. In 2019, the Capital Markets and Services (Designated Securities) (Digital Currency and Digital Token) Act 2019 classified digital assets into two categories: Digital Currency and Digital Token. Assets that meet specific criteria become securities regulated by the Securities Commission Malaysia (SC).

SC has revised its “Recognised Market Guidance,” requiring Digital Asset Exchanges (DAX) to register as Recognised Market Operators (RMO). Exchanges must meet strict requirements: a minimum paid-up capital of 5 million MYR (approximately 1.25 million USD), stringent governance standards, and incorporation in the local area. These measures enhance the stability of exchanges and investor protection.

Regulated entity types:

• DAX (Digital Asset Exchange) operators: Provide cryptocurrency spot trading services through order book or brokerage models.
• IEO (Initial Exchange Offering) operator: Manages token issuance and investor recruitment platforms in a regulated environment.
• Digital Asset Custodians (DAC): Providing cryptocurrency custody and management services for institutional and retail investors.

In 2020, Malaysia released detailed operational guidelines to strengthen the regulatory foundation. These guidelines classify IEO and DAC as independent business categories, each requiring registration as an RMO. This created tailored regulatory standards for each type of business based on its specific characteristics.

As of 2025, there are 12 companies operating as digital asset RMOs: 6 cryptocurrency exchanges, 4 custody service providers, and 2 IEO platforms.

Phase Two: Strengthening Law Enforcement and Blocking Overseas Exchanges to Protect Investors ( 2021-2024 )

After establishing the regulatory framework, the SC strengthened law enforcement through active market control. The SC did not stop at formulating rules but actively cracked down on illegal elements to enhance the credibility and security of the regulatory ecosystem.

The SC pursues two core objectives: to maintain regulatory consistency by shielding against unregistered offshore exchanges operating illegally in Malaysia; and to prevent investors from being harmed by using unauthorized platforms. The SC has created an “Investor Alert List” to warn users in advance. This list includes certain global exchanges. The SC has repeatedly emphasized that trading on these platforms is not protected by Malaysian law.

Since 2021, the SC has shifted from passive measures to direct and strong enforcement. In July 2021, the SC ordered a certain exchange to stop providing services to Malaysian users within 14 days and to shut down all channels, including its website. After 2022, as the cryptocurrency market faced global crises including the FTX bankruptcy and the Terra Luna collapse, Malaysia strengthened its regulatory approach. The SC pointed out that these events occurred in an unregulated environment and took similar actions against unauthorized exchanges.

These measures go beyond formal sanctions. Regulators have implemented comprehensive blocking and market exit strategies. The SC has collaborated with Internet Service Providers (ISPs) to block the websites of targeted exchanges and has requested app stores to remove the exchange applications. At the same time, the central bank and tax authorities have instructed local banks to prohibit deposit and withdrawal services with unauthorized platforms. Authorities have also strengthened sanctions against individual investors. Investors confirmed to be using P2P trading or unauthorized exchanges will have their bank accounts frozen, financial products restricted, and their cars and mortgages recalled early.

Phase Three: Malaysia’s Rapid Transformation After Trump’s Election ( From 2025 to Present )

After Trump’s election, Malaysia’s cryptocurrency market has rapidly developed. Prime Minister Anwar Ibrahim discussed cryptocurrencies with former Thai Prime Minister Thaksin in January, and then held talks with the founder of a certain exchange in April to discuss developing Malaysia as a digital asset hub. These actions indicate Malaysia’s intention to lead regional digital financial policies as the ASEAN chair. Compared to last year, Malaysia’s Web3 market has grown rapidly, marking a turning point since Trump’s election.

The government’s political commitment quickly transformed into concrete policy changes. Prime Minister Anwar directly launched the “Digital Asset Innovation Hub” as the first major achievement in June 2025. Bank Negara Malaysia (BNM) leads this regulatory sandbox. This sandbox will serve as a secure testing environment. It will actively encourage experimentation and innovation in digital assets. At the blockchain industry roundtable hosted by the Malaysian Digital Economy Corporation (MDEC), Digital Minister Gobind Singh Deo also announced the establishment of the “Digital Asset and Blockchain Working Committee,” highlighting the government’s systematic approach.

While the construction of policy infrastructure is underway, the development of technological infrastructure is also accelerating. The Minister of Science, Technology and Innovation, Chang Lih Kang, announced the official launch of the Malaysia Blockchain Infrastructure (MBI) at the opening ceremony of the 2025 Malaysia Blockchain Week. This infrastructure is developed in collaboration with the government agency Malaysian Institute of Microelectronics Systems (MIMOS) and the local mainnet project Zetrix. The project explores practical blockchain applications ranging from enhancing government transparency to halal certification and improving trade and supply chain efficiency.

The most significant change is the relaxation of regulations by the SC. The SC is shifting from a strict approval review model to significant deregulation through the “Consultation Document” released in June 2025. As of July 2025, only 23 cryptocurrencies that have passed the SC’s strict review can be listed on local exchanges. Under the new regulatory framework, exchanges can make listing decisions independently without prior approval from the SC, as long as they meet the specified criteria.

However, what the Malaysian regulators are pursuing is not simply deregulation. Authorities are strengthening operational requirements, such as increasing the paid-up capital of exchanges and introducing a self-regulatory model, while maintaining a conservative stance on high-risk cryptocurrencies, including privacy coins, meme coins, and stablecoins. This approach seeks to strike a balance between market autonomy and stability.

These policy changes indicate Malaysia’s strategic intention to compete with Singapore and Hong Kong, aiming to become a major Web3 hub in the Asia-Pacific region. Coupled with the pro-crypto policies of the Trump administration, Malaysia is positioning itself as a key bridge connecting Western capital with Asian markets.

4. Analysis of Key Areas in the Malaysian Cryptocurrency Market

4.1. 中心化交易所 (Centralized Exchange)

Malaysia operates six recognized local cryptocurrency exchanges. One exchange dominates, accounting for over 90% of the local trading volume, forming a winner-takes-all structure similar to other Asian countries like South Korea and Thailand. However, the newly launched exchange Hata last year has shown rapid growth, seemingly injecting new vitality into the market. Sinegy is also a major player, providing cryptocurrency trading services for businesses and institutional investors.

The actual influence of local exchanges remains limited. Despite regulators’ efforts to block certain unauthorized exchanges, many investors continue to actively use global platforms through workaround methods. It is estimated that 40-60% of the total cryptocurrency spot trading volume in Malaysia occurs on global exchanges.

In addition, the small size of the cryptocurrency market in Malaysia poses challenges for local operators. Although a certain exchange occupies over 90% of the local market share, the trading volume remains limited. The daily trading volume of a certain exchange is about 200 times lower compared to a certain exchange in South Korea. According to BNM’s annual report for 2024, by the end of 2024, the cumulative deposits from banks net inflow to locally registered DAX account for less than 1% of the total deposits in the banking system, approximately 0.4% of the market capitalization of securities listed on Bursa Malaysia.

The reason investors prefer global exchanges is due to the structural limitations of local platforms. The SC’s direct involvement in the approval process for cryptocurrency listings requires a strict procedure. This limits the tradable cryptocurrencies to only 23 types. Low liquidity makes large-scale transactions difficult. The lack of margin trading or derivatives reduces the appeal for investors.

Under these restrictions, local exchanges seek survival strategies by concurrently operating brokerage businesses. They offer over-the-counter (OTC) trading and stablecoin on/off-ramp services outside of the exchanges. This is especially targeted at wealthy family offices and digital nomads to generate additional income. The emergence of this business model stems from local exchanges’ limitations on major stablecoins such as USDT and USDC. Insufficient liquidity for large transactions has also contributed to this development.

Malaysia’s cryptocurrency tax policies significantly influence the choice of exchanges. Cryptocurrency profits are classified as income tax rather than capital gains tax. The government only taxes the amount withdrawn. For example, if someone holds 10 BTC but only withdraws 1 BTC locally, taxes only apply to the amount withdrawn. Airdrops, staking, and DeFi earnings are also subject to income tax. The government monitors cryptocurrency activities by sharing transaction data from local exchanges. Authorities impose additional investigations and penalties on those who do not report. This tracking system seems to be a major factor in discouraging investors from using local exchanges.