The Reserve Bank of Australia thinks that the surging value of privately issued cryptocurrencies is inflated and that their mass uptake could soon be brought to a halt off the back of regulatory crackdowns and the rollout of central bank-issued digital currencies.
Speaking to the Australian Corporate Treasury Association on Thursday, Tony Richards, the RBA’s head of payments policy, said there are “plausible scenarios” where a “range of factors” could see speculative demand for crypto assets unwind at speed.
“Households might be less influenced by fads and a fear of missing out and might start to pay more attention to the warnings of securities regulators and consumer protection agencies in many countries about the risks of investing in something with no issuer, no backing, and highly uncertain value.”
It’s a point that has long been doubled down upon by Australian regulators who have only recently started to warm to the asset class.
Late last month, ASIC gave early approval to fund managers looking to launch crypto exchange traded funds, with underlying crypto assets currently limited to Bitcoin and Ethereum.
ASIC’s announcement added to a wave of recent advancements made by cautious politicians and conservative regulators, who have on the whole been slow to embrace crypto in Australia.
Weeks earlier, Liberal senator Andrew Bragg also made moves to convince policymakers to legislate for the space in Australia to stop Australian-based digital currency exchanges from decamping to the UK and Singapore as a result of insufficient regulatory frameworks.
But Richards said they might have good reason to be sceptical about the longevity of the “speculative demand” for crypto assets, which he said would likely be thwarted once central banks start to issue central bank digital currencies (CBDCs) of their own.
He predicted that, in future, investors will become more risk averse, and consumers looking to use crypto assets as currency will be more likely to lean toward stablecoins, or fiat currencies like a CBDC, in theory, which is issued by a regulated body.
Adrian Przelozny, CEO at Australian crypto exchange Independent Reserve, told Business Insider Australia most investments bring with them some degree of risk. He argues that only crypto has been able to deliver consistent, high yield returns in recent years.
“There’s always commentary about the volatility in crypto, but that’s present with almost any type of investment, whether it be commodities, stocks, FX or even with property,” Przelozny said.
“Investing is about building wealth over a long period, and since I started Independent Reserve in 2013, Bitcoin has averaged year-on-year growth of 259%, which clearly stacks up highly against any other investment.”
The number of Australians reported to be holding crypto assets — which some surveys have put at more than 20% of the nation’s population, while a recent Senate committee report put it at 17% — was another point of contention for Richards on his way out.
“I must say that I find these statistics somewhat implausible,” Richards said. “I cannot help thinking that the online surveys they are based on might be unrepresentative of the population.”
Binance Australia CEO Leigh Travers argues the opposite.
“The growth we’re seeing at Binance Australia is certainly not exaggerated,” Travers told Business Insider Australia.
“In the last week, we have had record high trading volumes and we’re averaging 20,000 new users per week.”
Richards said that tax authorities, are likely to start taking a more scrupulous approach to holders of crypto assets because of concerns related to the anonymity afforded to investors.
He said that, because of the anonymity afforded by crypto intermediaries, the asset class could soon become a focus for financial crime and “the black economy”.
“Tax authorities and agencies with responsibility for preventing financial crime could pay greater attention to transactions going through the on- and off-ramps linking cryptocurrencies to the traditional financial sector.”
It’s a line that has been revisited consistently by central banks around the world over the last three years, and was most recently rehashed by the world’s top organisation of central banks earlier this year.
The Bank for International Settlements (BIS) delivered a searing assessment of crypto markets in late June, urging the RBA, the US Federal Reserve, and other central banks around the world to issue CBDCs to counteract the proliferation of cryptocurrencies.
Richards told the Australian Corporate Treasury Association when they do finally emerge, they could push crypto out to the fringes and render them a novelty.
“If there were to be global policy action to deal with some particular concerns about the use of cryptocurrencies, plus the arrival of new stablecoins and CBDCs that could safely meet the needs of a wide range of users, existing cryptocurrencies might then have only niche use cases at best,” he said.
“If so — and also reflecting that the relevant code is often open-source, publicly available and easily copied — it seems plausible that current valuations of many cryptocurrencies would not be sustained.”
Przelozny disagreed, saying that cryptocurrencies are already too deeply embedded in the fabric of the mainstream.
“In a cross-sectional survey we conducted in November and are due to release the full findings of later this month, 29% of respondents said they now own crypto, which really emphasises the shift from fringe to mainstream,” Przelozny said.
“Moreover, of those 29% of everyday Australians that own crypto, 90% said they’ve either made a profit or are breaking even on their investment.”