FYI | Nov 16 2021
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Regulators and banks prepare for a brave new crypto world as Australians champ at the bit.
–A series of major developments in the crypto sector signal a new chapter in Australian finance
-Alongside a report out of the Australian Senate, CBA customers will be able to trade cryptos via a new app
-ASX gains its first crypto-themed listing, the first of many
By Ed Kennedy
History is likely to remember 2021 as the year cryptocurrency achieved legitimacy in Australia and the world.
Crypto critics remain and many supporters still retain at least some concerns about the crypto universe, but not even the fiercest critic could deny that major moves this year have injected confidence into the sector, which is set to grow in size and support.
A review of big recent developments in Australia illustrates this vividly.
Those seeking to understand the Aussie crypto scene will need to understand how these landmark events will prove the cornerstones of a new era in Australian finance.
A Snapshot of Australia’s Embrace of Cryptos
Multiple statistics affirm that Australians have keenly embraced cryptos.
According to Finder's Cryptocurrency Report 2021 published in September, 17% of survey respondents indicated they owned cryptos as at June 2021.
Another survey from Finder in January contended 25% of Australians either already held cryptos, or were planning to do so.
The Senate Weighs In
Whenever a legislator mentions the crypto, the industry takes notice.
While cryptocurrency is by nature decentralised, the capacity of a centralised public authority to substantially enhance or hinder activities in the sector depends upon its inclination.
The contrasting experiences of crypto traders and professionals in the US and China in recent months – as discussed further in An Idea With Currency: The American Quest For A New Crypto Accord and linked below – are illustrative of this.
While digital currency exchanges have been required to register with AUSTRAC since 2018, the regulatory approach of Australia towards cryptos has been described as ‘light touch’ – until now.
Substantial momentum for change has developed since the recent publication of a landmark final report by the Senate Select Committee on Australia as a Technology and Financial Centre.
Released in October, it offers 12 recommendations – reforms that aim to position Australia as a leading crypto hub. Such reforms would occur in the realms of licensing and regulation, alongside taxation.
Recommendation 1 calls for the Australian government to “…establish a market licensing regime for Digital Currency Exchanges, including capital adequacy, auditing and responsible-person tests under the Treasury portfolio.”
Recommendation 2 calls for the establishment of "… a custody or depository regime for digital assets with minimum standards under the Treasury portfolio”.
Concerning tax, there are two notable recommendations which, if implemented, would provide visible and direct outcomes to crypto traders and businesses alike.
Recommendation 6 suggests “…that the Capital Gains Tax (CGT) regime be amended so that digital asset transactions only create a CGT event when they genuinely result in a clearly definable capital gain or loss.”
Recommendation 7 proposes “…that the Australian Government amend relevant legislation so that businesses undertaking digital asset 'mining' and related activities in Australia receive a company tax discount of 10% if they source their own renewable energy for these activities.”
Other recommendations from the report are sure to generate significant discussion such as the call for a policy review into the prospects of a central bank digital currency (CBDC) as proposed in Recommendation 8.
Similarly, Recommendation 10’s proposal “…that in order to increase certainty and transparency around de-banking, the Australian Government (should) develop a clear process for businesses that have been de-banked” and that it “should be anchored around the Australian Financial Complaints Authority which services licensed entities”, is particularly significant given de-banking is an issue of anguish for much of the local crypto scene.
Commonwealth Bank of Australia's ((CBA)) announcement of a trading platform adds another layer to this, as shall be discussed further along.
The Committee Chair On The Context Of The Recommendations
Reflecting upon the significance of the recommendations during an interview with the ABC’s Lisa Millar last month, Senator Andrew Bragg, chair of the Senate Select Committee, emphasised that Canberra needed to strike the right balance between being responsive to calls among the local crypto sector for regulation, while avoiding overreach.
“..what we’ve recommended is a regulatory reform agenda, which is balanced between protecting consumers, but ensuring that we don’t destroy innovation. Because one thing Canberra is good at doing is destroying innovation,” said Senator Bragg.
While many may see the recommendations as cutting edge, Senator Bragg has indicated this is also about Australia getting up to speed with other nations.
“If adopted in full, the Senate’s crypto reform agenda would bring Australia’s regulations in line with the best in the world, like the UK and Singapore”, said Senator Bragg in a statement on his website published in early November.
More bluntly, in reflecting upon the consequences of Australia not moving to implement these recommendations during the aforementioned ABC interview, Senator Bragg painted a picture of a future in which Australia would fall behind other nations in the crypto space.
“Well, we won’t have the jobs, and we won’t have the utility and the choice for people, unless we move in this direction," said Senator Bragg. "So, the jobs will be in Singapore and the UK, and people will be stuck with the same old products, from the same old vested interests."
Senator Bragg hoped to introduce the report’s recommendations within a year.
The CBA Moves On Cryptocurrency
In early November, the CBA announced it would provide the means for its customers to buy and sell up to 10 different crypto assets via its app.
Bitcoin, in addition to other household names in the crypto world such as Ethereum and Litecoin would be among this collection.
The pilot program is set to start before year-end, and product improvements are expected in the new year.
This was the first move of its kind by a major bank in Australia, and will occur via a partnership between the CBA, the crypto exchange Gemini, and the blockchain analysis firm Chainalysis.
Many expect it is only a matter of time before the remaining three major banks seek to offer their customers with a similar service, although others suspect the CBA will be the sole actor in this space for the next little while.
For the Australian industry more widely, CBA’s shift into crypto trading is expected to yield numerous benefits.
Not only will the visibility of crypto trading under the CBA umbrella confer greater validity upon the sector among the general public – spurring many would-be traders who have toyed with the idea of owning cryptos to finally dip their toes in the water – it is hoped this move will help drive down de-banking.
The ASX Officially Kicks Off A New Era
Also in early November, the ASX launched the first crypto-themed ETF on the ASX. The BetaShares Crypto Innovators ETF ((CRYP)) debuted on Thursday, November 4, at $11.23 per share.
The ETF offers investors an exposure to up to 50 holdings. But instead of offering direct investment in crypto coins, this ETF offers exposure to global companies that conduct business in the sector; Coinbase, Silvergate Capital, Marathon Digital Holdings, and Galaxy Digital Holdings being among the more notable names.
Although CRYP is the first of its kind on the ASX, the Cosmos Global Digital Miners Access (DIGA) ETF launched on Chi-X in recent weeks.
Bitcoin is also in the sights of VanEck Australia, the fund manager's website allowing interested parties to register their interest for an ETF in this space. So while CRYP makes history as the first on the ASX, others should soon follow.
Taking Account Of Change
Given the enthusiasm with which Australians have sought to trade cryptos, there is little doubt that the aforementioned developments will – allowing for the volatility seen regularly in the crypto sector – help increase local trading activity.
While measuring the precise popularity of cryptos across national populations can be challenging, Australian consumers have been considered among the keenest embracers of crypto in the world, and further growth and regulation is expected.
The local crypto scene is almost certain to hit some speed bumps but the sector is preparing for a new era – its most interesting chapter yet – and the wider Australian financial industry is set to travel with it.
An Idea With Currency: The American Quest For A New Crypto Accord
Senator Andrew Bragg interview with Lisa Millar, ABC (Online) 21 October 2021:
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