In Australia, cryptocurrencies are generally treated as an investment, but it’s unclear whether individuals buying crypto assets and non-fungible tokens (NFTs) truly appreciate the speculative nature of these investments.
A 2022 survey by ASIC found crypto was the second most common product type held after Australian shares. Yep, you read that right. ASIC Chair Joe Longo said mainstream adoption made a case for regulation to protect unwary people: “According to the survey, only 20% of cryptocurrency owners considered their investment approach to be ‘risk-taking’, raising concerns that investors did not understand the risks of this asset class.”
There have been many high-profile hacks, scams and collapses over the past few years, such as the downfall of the world’s second-largest crypto exchange FTX, which left many people out-of-pocket and reduced confidence across the market. FTX was widely considered a legitimate player, but folded within a matter days. In Australia, some 50,000 people were believed to be out of pocket as a result of the FTX debacle. Recently, the former chief executive of Binance, Changpeng Zhao, was sentenced to four months in prison after pleading guilty to money laundering charges via the exchange.
Crypto asset values can, and do, rise and fall dramatically based on nothing more than a tweet, and investors have few protections if companies become insolvent or experience security breaches. Additionally, crypto has created new and confusing tax obligations.
But despite the scams and the volatility, it appears that certain crypto projects, such as bitcoin and ethereum, are gaining mainstream appeal. Many investors view bitcoin as ‘digital gold’ akin to a fluctuating commodity rather than a traditional stock. Earlier this year, the SEC in the US approved 11 spot bitcoin exchange-traded funds (ETFs), and there is talk of spot ETFs being launched on Australia’s largest exchange, the ASX, by the end of the year.
What’s Australia’s Current State of Play?
There has been some progress on the regulatory front in Australia in recent months as the federal government has voices its intention to proceed with legislation that regulates crypto. This began in 2023 with the defining of asset classes through token mapping, in what it described as a world first ‘token mapping’ exercise. Token mapping involves categorising digital assets to help determine how they need to be regulated—as crypto tokens and NFTs have a broad range of applications.
The government has also signalled its intent to introduce a custody regime for digital assets and licensing for crypto exchanges. In a speech to the Australian Financial Review Summit last October, financial services minister, Stephen Jones, said regulation was needed to protect Australians.
“Financial losses via bank transfers remain the main form of scams. And bank transfers are a core part of our financial system.But bank oversight means there are additional consumer protections for bank transfers that aren’t there for crypto transfers,” he said.
“Because of these factors—collapses, misconduct, dodgy tokens, and scams—Australians have lost millions, or been forced to wait their turn in a long line of creditors.”
Jones said the focal point for regulation would be tougher rules for exchanges, which will be required to hold an Australian Financial Services License (AFSL) in order to transact in Australia.
“A financial services licence comes with a number of obligations. Obligations others in the finance industry are meeting,” he said.