How feasible is the idea of Phuket as a crypto hub?

The Thai government aims to launch a so-called "Phuket sandbox" for cryptocurrency with the ambitious goal of making Phuket a crypto hub in Asia.

“Thailand is not ready to allow the nationwide use of cryptocurrency, but has an idea to create the Phuket sandbox that would allow foreign tourists to use crypto to buy goods and services,” Finance Minister Pichai Chunhavajira said in early January.

The Phuket pilot project would increase the purchasing power of “digital nomads” and those escaping war in their own countries, allowing them to buy residential units in Thailand.

However, the law may need to change, and the project could materialize within this year, according to Pichai, who is also a deputy prime minister.

Types of digital assets

As we consider Phuket’s potential to become a crypto hub, it's essential to understand the different types of digital assets that could be involved.

Central Bank Digital Currencies (CBDCs) are one category, divided into retail CBDCs and wholesale CBDCs. Retail CBDCs are designed for use by the general public, while wholesale CBDCs are intended for financial institutions.

Private digital currencies are another major category, and these can be divided into stablecoins and blank coins. Stablecoins are designed to be less volatile than other digital assets and can be fiat-backed, asset-backed, or algorithmic.

Fiat-backed stablecoins are pegged to a currency like the US dollar, while asset-backed stablecoins are supported by reserves of commodities or other assets.

Algorithmic stablecoins use complex algorithms to maintain their value.

In comparison, blank coins such as bitcoin and ether are not asset-backed, making them highly volatile. These coins derive their value from market demand and supply dynamics, leading to significant price fluctuations.

Pros and cons

Cryptocurrencies offer several advantages but they also have disadvantages as we consider their role in Phuket’s economic landscape.

One advantage is their increasing popularity as investment assets. Cryptocurrencies are also easily transferable across borders, which can be beneficial in a globalized economy. Companies could also raise funds by launching digital coins to fund their businesses.

However, trading in cryptocurrencies is highly speculative, and investors may suffer substantial losses. There are also significant cybersecurity concerns, as cryptocurrencies are often targeted by hackers.

Additionally, cryptocurrencies are widely used in criminal activities due to their anonymity. Lastly, the economic functions of cryptocurrencies are not entirely clear, raising questions about their long-term viability, according to many critics.

Why Phuket?

Phuket is a unique region with several characteristics that make it a prime candidate for becoming a crypto hub.

As a popular global tourist destination, Phuket attracts visitors from around the world, including a significant number of Russians and Ukrainians who have taken refuge from the conflict in their homeland.

These individuals are believed to often use cryptocurrencies to store wealth or transfer assets out of their home countries.

The Thai government is keen to promote the use of cryptocurrencies in Phuket to establish the island as a regional crypto hub and boost tourism.

However, the Bank of Thailand (BOT) had previously banned the use of cryptocurrencies as a means of payment, citing concerns about the impact on the national currency and the risk of financial stability.

The central bank has not changed its stance on this issue.

Mixed opinions of experts

Former finance minister Sommai Phasee questions the practicability of the proposed Phuket crypto hub.

“You cannot force it to happen by legislation, it depends on the demand of the users. Moreover, financial markets are very complicated. You need to heed the central bank’s monetary policy,” he said.

“How come the government wants to introduce a law allowing cryptocurrencies to be used as a means of payment in just Phuket but not in other parts of the country? It may better be done gradually according to market forces,” adds Sommai, who also runs hospitality-related businesses in Phuket.

Industry experts are cautiously optimistic about Phuket's development as a crypto hub.

Saran Siriphantnon, acting managing director at Orbix Trade Co, says the government has to balance the benefits of using crypto and the central bank’s concerns about its impact on the baht.

He emphasizes the need for authorities to prioritize the development of the country’s capital markets. He suggests allowing fundraising through initial coin offerings for startups or companies with solid business plans as a crucial step toward realizing this potential.

Rise of an alternate asset class

While global crypto currency values are on the rise, should Thailand promote using crypto in Phuket it could lead to more Thai investors buying more digital assets as an alternative investment asset class.

Investors considering cryptocurrency investments should be aware of both the opportunities and the risks involved.

“While there is high potential for substantial returns, there is also a significant risk of losing the entire principal investment,” Saran warns.

The Thai authorities may soon allow the trading of spot cryptocurrency exchange-traded funds, which could be less volatile than individual cryptocurrencies, according to many market analysts.

Saran believes a well-developed regulatory framework could make Thailand an attractive investment destination.

BOT mum on sandbox idea

The BOT did not respond to a Thai PBS World request for its opinion on the Phuket sandbox idea.

Phuket, as a potential hub for cryptocurrency, remains to be seen, as the central bank has not responded publicly yet to the government move.