As global cryptocurrency execs are set to fly into Australia to meet with the government, advisers warn the current financial services framework is not able to handle digital assets.
The submissions arrive as international executives from global cryptocurrency businesses are set to fly into Australia to engage in talks with the governments cryptocurrency units, the Reserve Bank of Australia, MPs from the House Economics Committee, Minister for Cybersecurity Clare O‘Neill and the Tech Council of Australia this week.
About 1 million Australians are expected to include crypto assets on their tax returns this year.
Token mapping is the process of identifying, measuring and mapping the functions of a product in the cryptocurrency space, said Caroline Bowers, chief executive of BTC Markets, which has also filed a submission to the federal government consultation process.
“It’s the first step for this government toward having a regulatory lens on digital assets,” she said.
Those in the crypto industry have long called for regulation surrounding the custody and licensing of digital assets but there’s fears poor regulation could see prominent crypto projects leave Australia, said Piper Alderman partner Michael Bacina.
“If the current financial services regime was fit for purpose, blockchain and crypto businesses would already have licences,” he said.
The Treasury released a Token Mapping consultation paper quietly last month, calling for input from industry leaders.
The paper noted that global market capitalisation of Crypto had since November 21 lost around 63 per cent of its value, a fall which had “been exacerbated by high profile failures of crypto projects and organisations”.
The current value of the industry is $1.5 trillion, down from $4.1 trillion in November 2021.
“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 impact the broader economy,” it read.
BTC Markets CEO Caroline Bowler says Australia should not miss the chance to lead the world on regulation.
Ms Bowers said she understood the current approach under consideration by Australia was one of functional equivalence which would consider the characteristics of a cryptocurrency.
“If the treasury decided a particular currency has the aspects of a crypto financial product, the rules for an exchange would then be the same or very similar to the rules that would operate around the ASX listing a share,” she said.
Australia had an opportunity to become a major cryptocurrency hub which would in turn bring in a number of large cryptocurrency businesses to the country if the government could find the right balance on regulation, Ms Bowers said.
KordaMentha was the local advisory appointed as the local voluntary administrators of FTX, a now bankrupt global cryptocurrency exchange which many since likened to a Ponzi scheme. It held the same role for Brisbane-based cryptocurrency exchange Digital Surge. It has also filed a submission to Treasury.
The company’s head of digital assets, Paul Hewson, said after “having looked under the hood of two exchanges” and interacting with thousands of creditors, it was clear that custody of digital currencies was often too confusing for the average consumer.
“What we wanted to communicate to the Treasury through our submission is that it‘s not always clear on an exchange where you stand as a user who has custody of your digital assets, how private keys are held and who owns the digital asset,” he said.
Mr Hewson while working through the voluntary administrations of both exchanges, it was surprising to see how trusting Australians had been of the cryptocurrency industry.
“It was eye opening to see the faith that people placed in this new technology by way of how much money they had invested in proportion to their overall investment portfolio,” he said.
“The impact of the current contagion we‘re seeing through the fall of FTX, Digital Surge and all the others that have collapsed, is really affecting people’s lives.”
Australia could learn from countries like Japan which had taken a “very sensible, if conservative, approach” towards cryptocurrency and custody of digital assets, Mr Bacina said.
“Japan required exchanges to keep assets separate and in cold storage locally. What this means is that FTX Japan customers are now looking forward to having their assets returned to them,” he said.
Laws recently enforced in some US states, however, aren’t as sensible.
“When you have laws being made without the benefit of a comprehensive understanding of new technology, it’s very easy for good faith efforts to have unintended and negative consequences,” he said.
