Experts have warned that the current financial service framework is not equipped to handle digital assets, as representatives from the global cryptocurrency world prepare to fly into Australia to engage in talks with the Reserve Bank, House Economics Committee and other government entities.
It is anticipated that this tax year, around one million Australians will declare cryptocurrency assets on their returns. Token mapping, which is the process of measuring, identifying and mapping out the purpose of a product within the crypto industry, is a crucial step towards effective regulation of digital assets, said Caroline Bowers, CEO of BTC Markets.
“It’s the first move by the government to apply a regulatory lens to digital assets,” she commented.
Those in the crypto market have long been pushing for the introduction of industry regulation, particularly in terms of licensing and custody. But there is concern that poorly constructed regulations may lead to some of the more renowned crypto projects to leave Australia, according to Michael Bacina, Partner at Piper Alderman.
“If the financial services framework was fit for purpose, crypto businesses would already have licences,” he observed.
The Treasury recently published a token mapping consultation paper, inviting opinions and input from industry leaders. In the intervening time, the global cryptocurrency market capitalization has dropped from $4.1 trillion to about $1.5 trillion, a decrease that was expected to be exacerbated by the high profile failures of crypto companies.
“This volatility, combined with the increased exposure of Australian business and consumers to the performance of crypto assets, raises the risk that losses in this sphere could eventually feed through to the broader economy,” the paper stated.
BTC Markets CEO Caroline Bowler ” Australia You should not miss your chance to be a leader in regulation around the globe.
Ms. Bowers believes the government is taking a functional equivalence approach to cryptocurrency, which takes into account the characteristics and purpose of the asset. “If the Treasury decides a certain currency has the features of a financial product, then the exchange rules would be the same or very similar to the ones governing an ASX-listed share,” she said.
Australia has the potential to become a major hub for cryptocurrency, provided the regulations are well-balanced. This could bring some of the larger crypto businesses to the country, according to Ms. Bowers.
KordaMentha, the voluntary administrator for FTX, a US-based cryptocurrency exchange that is now insolvent, filed a submission to Treasury with the help of Digital Surge, a Brisbane-based crypto exchange. Paul Hewson, Head of Digital Assets for Digital Surge, noted that it is often unclear to users where they stand on an exchange when it comes to the custody of their digital assets and who owns the asset.
“We wanted to make sure the Treasury was aware it is possible to make this submission,” said Mr. Hewson. “It was quite eye-opening to see how much faith people had placed in the crypto industry in terms of their investments. The fall of FTX, Digital Surge and other exchanges is having a real impact on people’s lives.”
Japan has taken a long, but sensible approach to the regulation of crypto and digital asset custody, said Mr. Bacina. “They required exchanges to keep assets separate and stored offline in the country. Now, FTX Japan customers look forward to having their assets returned to them.”
Regulations recently enforced in some US states are not as pragmatic, he added. “When laws are made without a comprehensive understanding of the technology, it’s easy for good intentions to have unintended and negative consequences.”
