Indonesia’s Licensing Regime Raises Concerns of Market Monopolization

Indonesia is actively seeking to harness the economic potential of cryptocurrency while ensuring user protection through a stringent approval process. However, the country’s licensing framework has sparked concerns among stakeholders, according to Tuhu Nugraha, principal at the Indonesia Applied Digital Economy and Regulatory Network (IADERN).

Nugraha, who also serves as an advisor to the Indonesian government, pointed out challenges with the country’s Physical Crypto Asset Trader (PFAK) license. This license authorizes organizations to trade and provide crypto services but, according to Nugraha, the limited number of approved licenses could lead to monopolistic or oligopolistic market conditions.

An oligopoly is a market structure where a small number of companies dominate, making it difficult for new entrants to compete. Nugraha warned that the current licensing process could result in just a few players "dominating" the market.

Concerns Over Market Domination

On September 9, Tokocrypto, a subsidiary of Binance, became the third company to receive a PFAK license from Indonesia’s Commodity Futures Trading Regulatory Agency (Bappebti). Tokocrypto’s CEO, Yudhono Rawis, emphasized the significance of this approval, noting the scarcity of licensed companies.

Nugraha believes that this limited number of approved entities could negatively impact consumers by restricting choices and increasing transaction fees. “There is a risk that these players may dominate the market, limiting consumer options and leading to higher fees,” Nugraha explained. He added that such conditions could stifle innovation and reduce competition in Indonesia's crypto market.

He also pointed out that many exchanges are still awaiting approval, and the lengthy and complex registration process is slowing the entry of new players. This delay, according to Nugraha, hampers growth and innovation in Indonesia's crypto ecosystem. “The prolonged approval process can hinder competition, making it difficult for smaller or newer exchanges to thrive,” he noted.

Barriers for Smaller Exchanges

Nugraha further highlighted that Indonesia’s high capital requirements for obtaining a PFAK license present a significant barrier for smaller exchanges. “The substantial financial commitments needed limit the participation of smaller players, reducing competition and potentially hindering the diversification of services in the sector,” Nugraha said.

Despite the presence of a regulatory framework for crypto, Nugraha pointed out that legal clarity remains lacking in several areas, creating uncertainty for both market participants and investors. "This ambiguity, combined with ongoing regulatory developments, could deter investment and slow the sector’s broader advancement," he concluded.

Indonesia’s approach to crypto regulation is evolving, but these concerns about market concentration, high entry barriers, and legal uncertainties may present significant challenges to the country’s goal of building a thriving and competitive crypto ecosystem.