Crypto is a Greek word meaning “hidden’” but there’s nothing hidden in the news about cryptocurrency.
It has become ubiquitous because it’s real and it’s around us. Today, 100 million people have a bitcoin wallet.
As it stands there are two questions on cryptocurrencies or digital assets: can Australia keep pace with global developments and embrace the opportunities? And do we have the right consumer protections in place?
First, on the opportunities, just as Uber disrupted the taxi industry and we benefitted, cryptocurrencies and blockchain have the potential to help Australian industry prosper. It could improve risk management and efficiency.
Digital assets could be an important element of Australia’s long-held desire to be a tech and finance hub.
Australia has an exciting opportunity. We can be a global leader and a new financial system hub. We can attract a significant amount of investment, and jobs could be brought onshore if we get this policy right.
There are strong vested interests wanting to resist these developments. That’s because digital assets threaten the traditional banking model.
Over the next six months, the Senate Select Committee on Australia as a Technology and Financial Centre, which I chair, will look specifically at this because we can’t afford to waste time.
Cryptocurrency is effectively a new incarnation of money and more importantly a store of wealth. It might make finance work better, alter geopolitics and change how capital is allocated.
More than 50 monetary authorities, representing the bulk of global GDP, are exploring digital currencies. For example, the European Union is seeking a virtual euro by 2025, Britain has launched a taskforce and the US is building a hypothetical e-dollar.
There are strong vested interests wanting to resist these developments. That’s because digital assets threaten the traditional banking model where layers of financial intermediation exist.
The opportunities are endless if handled properly. Digital identification could allow the world’s “unbanked” population to have direct access to financial services.
But one of the first problems we have to overcome in this digital space is its image.
Even respected Sky News presenter Laura Jayes reflected a common perception and put to me recently that “cryptocurrencies are just the domain of tech heads and criminals”.
There’s nothing about cryptocurrencies that makes them vulnerable to this characterisation.
Rather, the reverse could be the outcome. The existence of distributed ledger technology, with a full chain of transactions, could make these assets more traceable than cash or money which is funnelled through opaque financial institutions.
Tech and finance hub Singapore appears to lead the way with its Payment Services Act, which has a comprehensive regulatory framework for crypto assets.
The Monetary Authority of Singapore administers a comprehensive framework that applies discretely to digital assets, existing alongside the frameworks for bonds, property and shares.
Licenses are issued by the authority and conditions can be attached. Penalties apply for trading without a licence or breaching conditions of the licence.
As a consequence, Singapore is now a hub for these products and some 234 blockchain companies operate there.
The tangible outcome of having a well understood regulatory framework is that recruitment firm Robert Walters reported a 50 per cent increase in the number of jobs in the blockchain industry between 2013 and 2020.
A market is also developing for retail investors in comparable economies and societies.
For instance, Canadian regulators have approved a number of cryptocurrency exchange-traded funds. One trader noted in April that a third of the 23 most actively traded ETFs on the Toronto Stock Exchange were cryptocurrency funds.
Second, it’s important that we have a consumer protection framework in place.
This is the argument put forward on these pages by RMIT economist Sinclair Davidson who said: “What [blockchain business models] need now more than ever is official recognition, and to be brought into the formal economy … so they can be recognised as being legitimate businesses with need of other business services.”
This isn’t a problem of market failure, but where policy and regulation need to catch up to innovation.
Keeping these assets unregulated could leave the door open for pernicious use.
To get with the game here we must ask the question about what sort of policy framework we should have.
As a Liberal, I don’t like additional regulation but we need some rules to prevent manipulation of markets and protect consumers. But we can’t leave it to the regulators as it isn’t their job to make policy – that is our role in Canberra.
Regulatory uncertainty will force operators into the shadows and this would only give banks a pretext to debank cryptocurrency parties that operate in a critical asset class.
A proper regulatory framework would allow legitimate institutions to access financial services within Australia and thus be subject to proper compliance.
It also means consumers and investors would get the investment confidence and protection they deserve.
We cannot put our head in the sand and pretend these developments are not happening.
That’s why we are running this review – to look at the opportunities and advise on consumer protection.
The onus is on the private economy to provide input on both questions through submissions to the committee. This will help us get the balance right.
Andrew Bragg is a Liberal senator for NSW.