Australian crypto experts say the rest of the world is watching on with jealousy, after Treasurer Josh Frydenberg announced plans to roll out new crypto regulation across the market.
Speaking to the Australia-Israel Chamber of Commerce in Melbourne on Wednesday, Frydenberg announced that the government will act on a selection of the recommendations made in October by a final report handed down in a Senate committee headed by Liberal senator Andrew Bragg.
Early next year, Treasury will open the consultation process on a new exchange licensing framework for the Australian crypto sector, which is currently unregulated and holds billions of the $US2 trillion worth of assets held globally.
Frydenberg said Treasury will also roll out a new custody regulatory regime for the exchanges which will aim to add clarity to the way assets are held and protected in Australia, and likely bring with it new costs.
“For businesses, these reforms will address the ambiguity that can exist about the regulatory and tax treatment of crypto assets and new payment methods,” Frydenberg said.
“In doing so, it will drive even more consumer interest, facilitate even more new entrants and enable even more innovation to take place,” he said.
“For consumers, these changes will establish a regulatory framework to underpin their growing use of crypto assets and clarify the treatment of new payment methods.”
BTC Markets CEO Caroline Bowers told Business Insider Australia that she was sitting on a global investor call Wednesday afternoon, where investors from foreign markets seemed “sad” out of jealousy.
“So already, like within hours of it being published, the global investor community is looking to Australia and going, ‘Wow, look at how far you’ve come,’” Bowers said.
“I think that probably speaks to how positively this can impact Australia on an international stage as well as for the local crypto investment community.”
All year, figures from across the space have anticipated that an announcement like the one Frydenberg made on Friday would turn the tide on an influx of major investment into Australia.
Jonathon Miller, managing director at Kraken Australia, has long shared the optimism. But, he said, the government should still exercise caution with the introduction of licensing and custody regimes, which he said could smoke out smaller firms unable to wear the costs.
“We don’t have to look far to see the effects of a heavy market license on the industry of other jurisdictions, such as Japan, where only a small handful of exchanges are able to manage the costs associated with maintaining market licenses and those costs are ultimately passed onto consumers,” Miller told Business Insider Australia.
“It’s critical that the government consults with the industry so that best practice can be developed by looking at existing secure and trustworthy exchanges. The novel character of digital assets means there is no existing licensing regime that is appropriate,” he said.
The sentiment wasn’t really shared, though. Bowers said her team has been preparing for this moment from day dot and, if anything, really embraces it.
“I think what I am really heartened by is that it seems like [Treasury is] taking a very, very consultative approach,” Bowers said.
“It doesn’t feel as though this is being pushed from the top down. It feels very much as though they’re coming in with an open mindset to really engage what’s required to not smother the industry.”
Treasury tries to make up for lost time by legislating for DAOs
After spending so long on the back foot with crypto, Australian policy makers not only want to catch up with the proliferation of the asset class, but also get ahead on the emerging structures that accompany it.
In his speech on Wednesday, Frydenberg said offering legal recognition to decentralised autonomous organisations, or “DAOs”, played a critical role in getting there. As such, the government will open consultation on how best to do so in the second half of 2022.
A DAO is a decentralised organisational governance model popularised by DeFi, where members can buy “governance tokens” to have a say in the decisions made by the group, and how it spends its money.
Bowers said the move was “audacious”. Joni Pirovich, founder and principal of Blockchain and Digital Assets Services and Law, told Business Insider Australia that large multinationals have already started to reach out for advice on how best to transition to the governance model.
“So it was a lighthouse moment for Australia,” Pirovich said.
“And because as a common law jurisdiction and as a jurisdiction which is revered for its financial services regulation, that had ripple effects across the world, and particularly for the other common law countries that we look to,” she said.
“[They want to] move in step when we advance our state of laws and regulations. And I think whether or not it’s legislated, you know, or announced in the election, it’s already [in motion]; a new business model that, strategically, businesses are feeling they need to get on top now.”
How viable is a central bank digital currency?
In his speech, Frydenberg also announced that Treasury would begin looking into whether a retail central bank digital currency (CBDC) linked to a sovereign currency — not to be confused with cryptocurrencies — could have a future in Australia.
Late last month, the Reserve Bank of Australia said it was considering creating a wholesale CBDC for early use among the major banks which could see use settling major transactions, like car sales and home loans, instantly.
The central bank, which has become part of a shrinking minority who think crypto has no future, has also thrown casual support behind the roll out of a retail CBDC in Australia, but only to protect Australians from the speculative volatility of crypto currencies.
But uptake only seems to be rising. Just yesterday, a new survey undertaken by Independent Reserve claimed that as many as 28.8% of Australians have some sort of exposure to crypto assets.
It’s a much more bullish picture than drawn by others in the space. In October, comparison site Finder said the rate was more like 17.8% — still the third-highest in the world — while others have put it closer to 20%.
The Australian Tax Office, meanwhile, estimates there are over 819,000 taxpayers that have transacted in digital assets since 2018. According to the ATO, the number of Australians invested in crypto has jumped 63% through 2021, compared to the number who did last year.