Crypto Regulation in Australia

Cryptocurrencies and Decentralised Finance (DeFi) are the new frontier for investors and their advisors. In this article, we discuss the rapidly evolving regulation and what the near future could hold for investors. 

Current Status

Many investors are surprised to learn how proactive the Australian Government has been in this space. Let’s have a look at where we’re up to and what’s in the pipeline.  

ASIC

Australian Securities and Investments Commission (ASIC) has issued a number of guidances on cryptocurrencies, and it has also taken enforcement action against companies that have engaged in misleading or deceptive conduct in relation to cryptocurrencies. 

Crypto-assets | ASIC

AUSTRAC

Laws for digital currency exchange providers (DCEs) were implemented by AUSTRAC, Australia’s financial intelligence agency and anti-money laundering (AML) and counter-terrorism financing (CTF) all the way back in 2017. The AML/CTF laws cover the regulation of service providers of cryptocurrencies, including Bitcoin. DCEs with a business operation located in Australia must register with AUSTRAC and meet the Government’s AML/CTF compliance and reporting obligations.

New Australian laws to regulate cryptocurrency providers | AUSTRAC

 Treasury
The Treasury Department has introduced legislation that excludes crypto assets such as Bitcoin from being treated as a foreign currency for Australian income tax purposes, stating they are to be treated as property such as securities and real estate with similar CGT implications.

Clarifying crypto not taxed as foreign currency | Treasury.gov.au

What’s next

The Australian Government are developing new legislation to further regulate cryptocurrencies. The proposed legislation is designed to address a number of concerns, including;

Money laundering and terrorist financing:

Cryptocurrencies can be used to launder money and finance terrorism. The new legislation will make it more difficult for criminals to use cryptocurrencies for these purposes.

Consumer protection:

Cryptocurrencies are a new and complex asset class. The new legislation will provide consumers with more protection against fraud and other risks.

Market integrity:

The new legislation will help to ensure the integrity of the cryptocurrency market by preventing market manipulation and other forms of misconduct.

The proposed legislation is expected to be introduced to Parliament in the near future. Once the legislation is passed, it will represent a significant step in the regulation of cryptocurrencies in Australia.

Report – Parliament of Australia (aph.gov.au)

Likely Impacts of Regulation

The Australian Government’s approach to regulating cryptocurrencies is still evolving, but it is clear that the government is taking the issue seriously. It is difficult to predict the exact impact of cryptocurrency legislation and regulation on cryptocurrency prices and value, however, we have a few clues. 

Many experts believe that cryptocurrency legislation and regulation could have a positive impact on prices and value. They foresee that regulation will provide increased certainty and legitimacy to the cryptocurrency market. They also believe that regulation could help to protect consumers from fraud and other risks.

The general consensus seems to be that regulation will lead to greater stability and legitimacy in the market, which experts and well-informed investors anticipate will encourage even more institutional investors, family offices, private wealth management firms, and high-net-worth individuals to feel more confident to increase their holding in cryptocurrencies. This will almost certainly have a positive impact on prices and value. 

On the other hand, some smaller investors are viewing increased regulation as a negative development and may choose to divest from the market, which could lead to an increase in supply and a subsequent drop in prices and value. 

Some experts have even argued that regulation could stifle innovation and make it more difficult for new cryptocurrencies to enter the market. They worry that regulation could lead to increased scrutiny of cryptocurrency exchanges and other businesses that facilitate cryptocurrency transactions (which is generally the point) and this could lead to higher fees and costs.

Conclusion

Ultimately, the impact of legislation and regulation on cryptocurrency prices and value will depend on a few key factors, including;

• The specific details of the regulations 
• How they are implemented and enforced
• The reaction of the cryptocurrency advisor and investor market.

As always, for investors who lack the time, expertise, or confidence to select financial assets on their own, seeking expert advice is the wise option. Certified Financial Planners who specialise in Cryptocurrency investment can provide guidance and advice on selecting financial assets that align with an investor’s financial goals, risk tolerance, and personal preferences.

Stay tuned

Next month I’ll be talking about investing through funds vs holding digital assets directly. I’m also planning on issuing my list of Crypto Funds that are available to Australian investors.