‘Weird limbo’ for cryptocurrency in 2022

Cryptocurrency is likely to be an election issue for millennials, according to an expert in risk and compliance.

TCM Capital’s Fred Pucci says some Australians are relying on the crypto market to help them buy a house or get ahead, but without the benefit of any safeguards.

“Some millennials are taking it to the extreme and putting all bets on,” Mr Pucci says.

“For the Liberals to have a policy that is going to help that market develop and be sustained with more of an Australian presence, and more Australian protections for investors, is going to be an attractive thing.”

But he says Treasurer Josh Frydenberg’s plans for regulation create a “weird limbo state” for crypto investors.

The overhaul includes a licensing regime for crypto exchanges and custody rules for assets, and draws heavily on the recommendations of a Senate inquiry chaired by fintech enthusiast Andrew Bragg.

“If you look at the fine print of Treasurer Frydenberg’s document, the timetable for the key planks of this are not going to come through, assuming they win the election and parliament passes the legislation, until mid to late-2022,” Mr Pucci says.

Chloe White, a former federal insider who guided policy thinking on blockchain and crypto-assets, is now managing director at Genesis Block.

“Like the rest of the digital asset sector, we’re very pleased to see the government taking the industry seriously,” she says.

“The major source of uncertainty is not the policy that’s been announced, it’s actually the upcoming election.

“The Senate inquiry was a bipartisan activity, and it would be great to see the opposition engage with the recommendations of the report to provide the certainty that the industry needs to make decisions about investment and hiring over the next year.”

Labor declined to provide a policy update.

“On the technology side, we’re very excited about the next 12 months,” Ms White says.

“There are opportunities ranging from renewable Bitcoin farms to fintech and everything in between.”

Mr Pucci agrees it would be a missed opportunity if Labor does not engage, with the silence worrying Australians involved in the market.

He says Senator Bragg has been very hands on during the 2021 inquiry to understand the way the infrastructure works – including blockchain technology, the exchanges, and the custodians.

“It does encourage them to see that the government is supporting that tech industry,” Mr Pucci says.

Ms White says the industry would love to see policy introduced quickly, but it was more important to get things right.

“Policy that is rushed and poorly designed can backfire, as we saw in the case of the New York BitLicense,” she explains.

The stringent New York regime put trading limits on state residents and required capital and costly licenses that most start-ups could not afford.

“There’s one more thing we expect to see in the next year and that’s more big-name investors like Carnegie choosing to take jobs and companies to crypto-friendly jurisdictions,” she says.

Rival areas are already luring Australian talent and transactions, including the Independent Reserve exchange that was developed here over the past decade and licensed this year by the Monetary Authority of Singapore.

The city-state has created a regulatory sandbox for more than 200 start-ups to play in while authorities keep a close watch.

“They’ve only given two or three actual licences,” Mr Pucci says.

“They’re screening very carefully but they’ve got one eye on it under this exemption regime.”

“You’re under probation, you’re under watch.”

Independent Reserve’s annual survey found 28.6 per cent of Australians who do not currently own crypto say they would invest if there were better consumer protections in place.

Bitcoin remains the most well-known and popular cryptocurrency in Australia, ahead of Ethereum.

The 24- to 34-year-old age group was the most trusting of crypto, with 27.6 per cent saying they bought in to get rich, while people aged 65-plus remain sceptical.

Visa spokesman Anthony Jones says every financial institution will require a strategy for crypto as Australians start to change how they think about money.

One in three Australian crypto-owners say they would be likely or very likely to switch their primary bank to one that offers crypto products in the next 12 months, according to research by the digital payments giant.

Among crypto-owners, the biggest drivers are to build wealth (40 per cent), to take part in the “financial way of the future” (34 per cent) and fear of missing out on gains (28 per cent).

But not all is as it seems.

The Australian Competition and Consumer Commission tells AAP almost half of the investment scams reported to Scamwatch involve cryptocurrencies.

From January to November 2021, Scamwatch received 8942 reports of investment scams with more than $150.4 million in losses. The tally is expected to top $164 million by the end of the year.

Their advice is to only invest as much as you can afford to lose.

Scammers will often lure people with a low initial investment, but then use high-pressure tactics to encourage clients to invest more and more. When it becomes time to cash in, the con becomes obvious.

“While there are fake crypto exchanges, scammers do use legitimate sites to scam people, such as asking them to pay by Bitcoin, so we generally urge people to exercise caution when using non-traditional payment methods,” an ACCC spokeswoman says.

People should always seek advice from a licensed financial advisor before making an investment decision, she says.

Mr Pucci says the recent collapse of myCryptoWallet, and Blockchain Global which ran the defunct crypto exchange ACX, were a perfect example of why there should be regulation of exchanges.

“There might have been capital requirements and basic safeguards,” he says.

“That’s why the best exchanges are around the table, literally, in supporting and encouraging regulation – because they see it as differentiating their legitimate business.”

He warns against trying to get insights via social media on whether the hype, or a new meme, was backed up by anything.

“It’s hard to tell, unless you’re inside the industry, who is good and who is safe, and who is not,” he says.

“There’s a huge range of tokens and coins that are absolutely rubbish so you’ve got to sort the wheat from the chaff.”