This article is reprinted with permission from Tiger Research Report, and the copyright belongs to the original author.
The cryptocurrency market in Malaysia has three key characteristics: a melting pot in Southeast Asia, a breeding ground for global champions, and a world center for Islamic finance.
Malaysia is a multilingual country, with a population proficient in Malay, English, Mandarin, and Tamil. This diversity creates a natural fusion 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 facilitates collaboration across different cultures and accelerates business expansion.
These conditions cultivate talent with a global perspective. In addition to language skills, individuals naturally develop cross-cultural understanding. 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 global influence.
The integration of Islamic finance in Malaysia creates unique opportunities. Malaysia operates the world's largest Islamic finance center, making compliance with Shariah a mandatory requirement for cryptocurrency businesses. This requirement has fostered innovation rather than restrictions. Malaysia was one of the first to recognize that cryptocurrencies comply with Islamic law, launching Shariah-compliant Bitcoin funds and enabling cryptocurrency zakat payments. These developments connect cryptocurrencies with the global Islamic finance market, which is expected to reach $10 trillion by 2030.
Malaysia is one of the countries in Asia rapidly establishing a regulatory framework for digital assets. In 2019, the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 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).
The SC revised its Recognised Markets guidelines, 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 ringgit (approximately $1.25 million), stringent governance standards, and local registration. These measures enhance the stability of exchanges and investor protection.
Types of regulated entities:
- DAX (Digital Asset Exchange) operators: Provide cryptocurrency spot trading services through order books or broker models.
- IEO (Initial Exchange Offering) operators: Manage token issuance and investor recruitment platforms in a regulated environment.
- Digital Asset Custodians (DAC): Provide cryptocurrency custody and management services for institutional and retail investors.
In 2020, Malaysia released detailed operational guidelines to strengthen the regulatory foundation. These guidelines classified IEO and DAC as independent business categories, each requiring registration as RMO. This created tailored regulatory standards for each business type based on its specific characteristics.
As of 2025, 12 companies operate as digital asset RMOs: 6 cryptocurrency exchanges, 4 custody service providers, and 2 IEO platforms.
After establishing the regulatory framework, the SC strengthened enforcement through proactive market control. The SC did not stop at rule-making but actively cracked down on illegal elements to enhance the credibility and security of the regulatory ecosystem.
The SC pursues two core objectives: maintaining regulatory consistency by blocking unregistered foreign exchanges operating illegally in Malaysia; and preventing investors from being harmed by using unauthorized platforms. The SC created an Investor Alert List to warn users in advance. This list includes global exchanges such as Binance and Bybit. The SC has repeatedly emphasized that trading on these platforms is not protected by Malaysian law.
Starting in 2021, the SC shifted from passive measures to direct and vigorous enforcement. In July 2021, the SC ordered Binance to cease services to Malaysian users within 14 days and shut down all channels, including its website. After 2022, as the cryptocurrency market faced global crises including the bankruptcy of FTX and the collapse of Terra Luna, Malaysia strengthened its regulatory approach. The SC noted that these events occurred in an unregulated environment and took similar actions against unauthorized exchanges like Huobi and Bybit.
These measures went beyond formal sanctions. The regulatory authority implemented comprehensive blocking and market exit strategies. The SC collaborated with Internet Service Providers (ISPs) to block the websites of targeted exchanges and requested Google Play Store and Apple App Store to remove the exchange applications. Meanwhile, the central bank and tax authorities instructed local banks to prohibit deposit and withdrawal services with unauthorized platforms. Authorities also intensified sanctions against individual investors. Investors confirmed to be using P2P trading or unauthorized exchanges would have their bank accounts frozen, financial products restricted, and cars and mortgages recalled early.
After Trump’s election, Malaysia's cryptocurrency market rapidly developed. Prime Minister Anwar Ibrahim discussed cryptocurrency with former Thai Prime Minister Thaksin in January, followed by talks in April with Binance founder Changpeng Zhao (CZ) about developing Malaysia as a digital asset hub. These actions indicate Malaysia's intention to lead regional digital finance policy as the ASEAN rotating 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 translated into concrete policy changes. Prime Minister Anwar directly launched the Digital Asset Innovation Hub in June 2025 as the first major outcome. Bank Negara Malaysia (BNM) leads this regulatory sandbox. The sandbox will serve as a safe testing environment, actively encouraging experimentation and innovation in digital assets. At a 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 building the policy foundation, the development of technological infrastructure is also accelerating. Minister of Science, Technology and Innovation Chang Lih Kang officially launched the Malaysia Blockchain Infrastructure (MBI) at the opening ceremony of Malaysia Blockchain Week in 2025. This infrastructure is co-developed by 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 SC's regulatory relaxation. The SC is shifting from a strict approval review model to significant deregulation through the Consultation Paper released in June 2025. As of July 2025, only 23 cryptocurrencies that have passed the SC's stringent review can be listed on local exchanges. Under the new regulatory framework, exchanges can independently make listing decisions without prior approval from the SC, as long as they meet specified standards.
However, the Malaysian regulators are not simply pursuing deregulation. Authorities are strengthening operational requirements, such as increasing the paid-up capital of exchanges and introducing self-regulatory models, while maintaining a conservative stance on high-risk cryptocurrencies, including privacy coins, meme coins, and stablecoins. This approach seeks to balance market autonomy and stability.
These policy changes indicate Malaysia's strategic intent to compete with Singapore and Hong Kong to become a major Web3 hub in the Asia-Pacific region. Combined with the pro-crypto policies of the Trump administration, Malaysia is positioning itself as a key bridge connecting Western capital with Asian markets.
Malaysia operates six recognized local cryptocurrency exchanges. Luno dominates, accounting for over 90% of local trading volume, creating a winner-takes-all structure similar to other Asian countries like South Korea and Thailand. However, the newly launched exchange Hata shows 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 unauthorized exchanges like Binance, many investors continue to actively use global platforms through workarounds. It is estimated that 40-60% of Malaysia's total cryptocurrency spot trading volume occurs on global exchanges like Binance and Bybit.
Additionally, the small size of the Malaysian cryptocurrency market poses challenges for local operators. While Luno holds over 90% of the local market share, trading volume remains limited. Luno's daily trading volume is approximately 200 times lower compared to Upbit in South Korea. According to BNM's 2024 annual report, by the end of 2024, the cumulative deposits from banks net inflow to locally registered DAX accounted 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 preference of investors for global exchanges is due to structural limitations of local platforms. The SC's direct involvement in cryptocurrency listing approvals requires a strict process. This limits the tradable cryptocurrencies to only 23. Low liquidity makes large-scale trading difficult. The lack of margin trading or derivatives reduces the attractiveness for investors.
Under these constraints, local exchanges seek survival strategies by parallel operating brokerage businesses. They offer over-the-counter (OTC) trading and stablecoin on/off-ramp services outside the exchange. This particularly targets wealthy family offices and digital nomads to generate additional income. The emergence of this business model stems from local exchanges' restrictions on major stablecoins like USDT and USDC. The lack of liquidity for large transactions has also contributed to this development.
Malaysia's cryptocurrency tax policy significantly influences 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, the tax applies only to the withdrawn amount. Airdrops, staking, and DeFi yields are also subject to income tax. The government monitors cryptocurrency activities by sharing trading data from local exchanges. Authorities impose additional investigations and sanctions on those who fail to report. This tracking system seems to be a major factor preventing investors from using local exchanges.
Malaysian regulators maintain a conservative stance on stablecoins. Dollar-pegged stablecoins like USDC and USDT have yet to be listed on local exchanges. Although BNM has not issued a clear statement on this issue, this cautious attitude may stem from policy priorities. The 1998 Asian financial crisis shaped these priorities, during which rapid capital outflows caused severe economic turmoil. This experience heightened vigilance regarding the stability of the local currency and foreign exchange management.
The SC's recent consultation paper indicates that this cautious attitude persists. Authorities explicitly state that stablecoins are susceptible to market price fluctuations and may undermine the stability of the local financial system. Regulators do not view them as simple payment tools but rather as potential macroeconomic risk factors.
Despite regulatory caution, private sector stablecoin experiments continue. Blox is developing a stablecoin 'MYRC' pegged to the ringgit. MYRC operates as a fiat-collateralized stablecoin. The token is pegged to the Malaysian ringgit at a 1:1 ratio on the Arbitrum and Ethereum blockchains. Users can mint MYRC by depositing into local bank accounts through the Blox platform. They can also redeem it similarly. MYRC is currently undergoing beta testing. The project has achieved a market capitalization of approximately $700,000, with limited but active trading volume.
However, regulatory overlap has led to project delays. The dual regulation between the SC and BNM in Malaysia has resulted in unclear responsibilities and standards. Blox has been working on this project for three years and has engaged with regulators. Due to the uncertainty of regulatory positions, the company has yet to receive final approval. The lack of a consistent regulatory framework for stablecoins is a core factor in the delay of approvals.
Signs of change are emerging. Prime Minister Anwar recently announced consideration of establishing a regulatory sandbox through the "Digital Asset Innovation Hub." This initiative includes experiments with ringgit-based stablecoins. The sandbox, led by the central bank, will provide a controlled environment for fintech and digital asset companies. Companies can test new technologies and services in these environments.
Given the government's ongoing concerns about capital controls, the initial focus may be on applications within the local financial ecosystem rather than cross-border payments. Potential use cases include 24-hour payment infrastructure, surpassing the traditional 9-hour banking system. Escrow services could leverage conditional payment features. Recent social issues, such as gym closures, have affected refunds for prepaid amounts. Uncertain fulfillment of home renovation contracts creates opportunities. Pilot implementations of "programmable money" could address everyday financial issues.
Malaysia's NFT market remains sluggish. Many participants who entered at high prices during the NFT boom have suffered losses and exited the market. This aligns with patterns seen in other countries. While there are some holders of global projects like BAYC, Azuki, and Milady, activity is mostly limited to small enthusiast gatherings. Malaysia lacks significant local NFT projects.
The Pudgy Penguins local community stands out as a notable exception in this environment. The community has established an independent ecosystem in Malaysia that goes beyond a simple network of NFT holders. An open operational approach and inclusive culture have driven this success. The community welcomes anyone to participate freely, regardless of NFT ownership. The entry barrier for newcomers is low.
Community members naturally connect with people from different backgrounds. They form meaningful relationships in an atmosphere of pure enjoyment and positivity that transcends simple information exchange. The community regularly hosts various offline events, such as wine tastings, go-karting, and pickleball. Even during bear markets, members maintain monthly gatherings. The community is also actively involved in external community activities. Members participate in events from other communities and collaborate through networking and referrals when needed.
The Pudgy Penguins local community stands out as a notable exception in this environment. The community has established an independent ecosystem in Malaysia that goes beyond a simple network of NFT holders. An open operational approach and inclusive culture have driven this success. The community welcomes anyone to participate freely, regardless of NFT ownership. The entry barrier for newcomers is low.
Community members naturally connect with people from different backgrounds. They form meaningful relationships in an atmosphere of pure enjoyment and positivity that transcends simple information exchange. The community regularly hosts various offline events, such as wine tastings, go-karting, and pickleball. Even during bear markets, members maintain monthly gatherings. The community is also actively involved in external community activities. Members participate in events from other communities and collaborate through networking and referrals when needed.
The community is preparing 'MY PENGU ACADEMY', an introductory education program for Web3 beginners. This initiative aims to expand the community and diversify participation.
Meanwhile, the local exchange Hata has launched a penguin-related meme coin $PENGU on its global platform (offshore version only). Some members of the Malaysian community are trading through workarounds. Given local restrictions on meme coin trading, this structure may provide another incentive for community participation.
The NFT market in Malaysia is more community-driven than transaction-based. Among these communities, Pudgy Penguins is the most organized and scalable example. In a smaller market environment, offline networking is becoming increasingly important. The operational model of Pudgy Penguins demonstrates significant insights in this regard.
Malaysia has established its position as the largest Islamic finance center in Asia. The country holds the global top position in the sukuk market, with an unmatched status. This foundation stems from its Muslim population, which exceeds 60%. As of 2024, Islamic finance accounts for approximately 47% of the entire financial system.
This characteristic influences the cryptocurrency industry. Malaysia is the first country in the world to officially recognize cryptocurrencies as Sharia-compliant assets. The country has approved 15 digital assets as compliant with Islamic law. Bitcoin has received this approval. All recognized digital asset market operators in Malaysia must maintain compliance with Islamic law. Local exchanges Luno and Hata adhere to these requirements.
Malaysian regulators believe that cryptocurrencies may be more compliant with Islamic law than traditional finance. The traditional banking system provides loans based on deposits and charges interest, which may violate the prohibition of riba (interest) in Islamic law. The operational structure of cryptocurrencies involves compensation for actual work, such as network maintenance and transaction validation. Bitcoin mining is viewed as legitimate compensation for computation-based verification work. Ethereum staking rewards contribute to network validation. These are fundamentally different from interest income.
Various Sharia-compliant cryptocurrency products have emerged. Halogen Capital operates as the world's first Sharia-compliant cryptocurrency mutual fund management company, managing approximately $75 million in assets. The company offers Sharia-compliant Bitcoin funds, Ethereum funds, and other products.
Nawa Finance operates as a Sharia-compliant DeFi protocol. The company collaborates with Solv Protocol to provide Sharia-compliant Bitcoin DeFi products. These products have received Islamic certification from Amanie Advisors, which is officially registered with the SC as an Islamic advisor. These products offer a secure and transparent halal income structure. Nawa Finance's Total Value Locked (TVL) has exceeded $50 million, showcasing significant achievements in the Sharia-compliant DeFi space.
Sharlife demonstrates innovation in the Islamic charity system. The platform supports the payment of zakat using cryptocurrencies. Sharlife collaborates with the Federal Territory Islamic Religious Council (MAIWP) to build a digital charity system.
However, there are practical limitations. Cryptocurrencies have not yet been recognized as an official payment method in Malaysia, which restricts real-world applications. The federal system also poses challenges for nationwide institutionalization.
Malaysia's global expansion potential remains highly valued. The expertise and experience accumulated in the Islamic finance sector are competitive assets in overseas markets. Malaysia leverages this expertise to develop Sharia-compliant crypto products. The country has previously expanded the institutional and product models of the Islamic bond market to the Middle East and Southeast Asia, based on local successes. This indicates that cryptocurrencies may also have similar expansion paths. Major Muslim countries like Saudi Arabia and Indonesia may adopt Malaysia's Sharia-compliant digital asset model. Malaysia has sufficient potential to lead the global digital transformation in this field.
The blockchain mainnet environment in Malaysia remains limited. Among global mainnets, Solana Superteam is almost the only active presence in Malaysia. Superteam collaborates with various Solana-based Malaysian projects, such as Jupiter and Meteora, focusing on supporting local builders and founders to expand the ecosystem. The organization actively runs community-centered activities, including hackathons, to achieve this goal. Ethereum KL, an Ethereum community, also operates locally but with limited activities.
IOTA is an exception. The project participates as an official sponsor of the Malaysia Blockchain Week 2025 (MYBW 2025). IOTA conducts active marketing activities locally. The company has received Islamic compliance certification from the Cambridge Islamic Finance Academy (Cambridge IFA). Subsequently, IOTA has strengthened its branding targeting the Islamic finance market and accelerated its market strategy in Malaysia.
Meanwhile, the Malaysian government's strategic focus is on developing its own blockchain infrastructure rather than simply adopting global public chains. The government aims to create a regulatory-friendly, controllable, and locally-centered blockchain ecosystem. They achieve this by collaborating with the local mainnet project Zetrix to develop the national blockchain infrastructure 'MBI'. This indicates a policy direction. The government aims to establish a stable and sustainable, state-led blockchain infrastructure rather than relying on external chains.
Malaysia ranks among the top ten globally in Bitcoin mining hash power. Large mining facilities are concentrated in the Sarawak and Sabah regions of Borneo. The operations of these facilities are based on extensive hydropower infrastructure, with electricity supply exceeding demand in these areas. Bitcoin mining actively utilizes this surplus electricity.
The large hydropower plants in Sarawak produce electricity that exceeds the region's demand. This surplus electricity is expected to be exported to Singapore and other countries in the future. Before the completion of the submarine cable infrastructure, the mining industry prioritizes the use of this electricity. Local governments collaborate with mining companies. Cheap electricity drives rapid growth in the mining industry, providing a stable alternative in a turbulent global mining environment. The mining ban in China has contributed to this instability.
However, illegal mining poses a serious problem. According to data from the Malaysian Blockchain Association ACCESS, the national utility company Tenaga Nasional Berhad (TNB) reported electricity losses of approximately 441 million ringgit ($100 million) due to illegal mining. Cases of electricity theft occur frequently, with some incidents leading to fires. Recent events include identity theft for fraudulent electricity contracts. In response, authorities have intensified their crackdown, seizing 985 illegal mining devices.
Malaysia's mining industry shows growth potential based on abundant renewable energy and institutional acceptance. However, the industry also faces social costs and regulatory issues arising from illegal mining. This indicates that while Malaysia is rising as a global Bitcoin mining center, it also carries challenges that need to be addressed.
Malaysia has a multilingual population, which can provide communication advantages. However, projects face complexities when entering the market. They must tailor strategies according to different target groups, creating barriers to entry.
For example, there are significant differences between ethnic Chinese Malaysians and non-Chinese Malaysians. They use different languages, community channels, and investment preferences. Islamic law influences the majority Malay population, which exhibits a relatively passive attitude toward financial investments. Ethnic Chinese Malaysians actively engage in local and international stock investments. They also actively use global cryptocurrency exchanges and derivatives on on-chain trading platforms like Hyperliquid. Market segmentation is evident, and a one-size-fits-all strategy cannot effectively address this structure.
The Web3 industry in Malaysia faces limitations based on its developer talent pool. While Malaysia has many capable entrepreneurs, the developer talent pool remains relatively limited compared to neighboring countries like Vietnam and Indonesia. Talented individuals often migrate to Singapore and other external regions, establishing companies or continuing their careers outside Malaysia. This creates a structural problem, making it difficult for Malaysia to accumulate talent within its ecosystem. Malaysia has produced world-class talent, but the local Web3 ecosystem itself faces structural constraints that hinder its vibrancy. These constraints pose significant challenges to the development of the local market.
Despite these challenges, Malaysia's cryptocurrency market retains significant potential. The market shows particular advantages in talent-based networks. Projects like Coingecko and Etherscan originated in Malaysia and have gained global influence. Malaysian talent also plays key roles in various global projects, including Meteora, Drift, and Pendle. These individuals form tight-knit networks throughout the global crypto industry, creating an environment for sharing opportunities and collaboration.
These networks show potential as a foundation for the development of Malaysia's local ecosystem. Recently, an increasing number of talents who have built careers overseas are returning to Malaysia. Low living costs and stable living conditions drive this trend. These returnees inject new vitality into the ecosystem through connections with local communities. Opportunities for knowledge sharing and collaboration with the next generation are also expanding.
Major universities, including Asia Pacific University (APU), Sunway University, and Taylor’s University, actively engage in blockchain-related academic activities. This ensures a continuous influx of the next generation of Web3 talent. If government-level policy support aligns with these trends, Malaysia's Web3 ecosystem could grow at a faster pace.
Malaysia serves as an Islamic finance center. The market is assessed to have unique opportunities in Sharia-compliant digital assets. Islamic finance currently occupies a small portion of the cryptocurrency market. However, related demand shows signs of gradual expansion. Binance's recent launch of Sharia-compliant products exemplifies this trend. Malaysia has institutionalized various Sharia-compliant products in traditional finance. The country possesses the institutional foundation and practical experience needed to extend this trend to digital assets, making Malaysia particularly noteworthy.
This foundation is not limited to the local ecosystem. There is a global demand for Sharia-compliant products, particularly concentrated in the Middle East. The potential for connections with these markets indicates that Malaysia is well-positioned. In the future, Malaysia could develop into a global center for Islamic digital assets.
Related: Malaysian regulators plan to relax the listing process for crypto assets
Original article: “Malaysia's Crypto Market 2025: The Invisible Force Behind Global Web3 Giants”
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