The collapse of FTX has shaken the confidence of investors, regulators, and crypto enthusiasts worldwide. It has also exposed numerous vulnerabilities within the crypto sector and authorities will undoubtedly be concerned about what comes next.
Given FTX’s scale, the true impact of the exchange will take some time to manifest itself. In the meantime, many have begun asking the question – should governments involve themselves in crypto?
And if so, what new regulations can protect investors from falling victim to another FTX-like event in the future?
Australia has yet to pass any regulation for cryptocurrency or blockchain. We have, however, seen some proposals from Australia’s government and financial institutions that may give us some insight into what cryptocurrency regulation could look like in Australia.
For example, the Proceeds of Crime Act 2002 and the Terrorism Act 2006 prohibit the use of digital currency for financing terrorism and organized crime.
1. Bitcoin tax
From a taxation perspective, the Australian Taxation Office (ATO) has specifically indicated its view that it will treat cryptocurrencies as assets rather than currencies or foreign currencies under Australia’s tax law respectively. This means that when an individual or business sells their crypto holdings for a profit, they will be taxed as capital gains made on an asset sale.
The taxation of cryptocurrency in Australia is based on the nature of your transaction. In other words, if it is a payment for goods or services and can be considered a barter transaction, then you are required to pay GST like any other person who sells goods or provides services.
If it was an investment and you have made gains from that investment, then those gains will be subject to Capital Gains Tax (CGT). If someone gifted you cryptocurrency as an inheritance or gift then no CGT would apply because it’s not taxed according to how long you hold onto something before selling it or exchanging it for another asset class such as fiat currency.”
2. Crypto licenses
Besides calculating your CGT and tax returns, the Australian Taxation Office also has a hand in regulating cryptocurrency in Australia.
A digital currency exchange service provider license. This is the most common type of crypto license issued to exchanges and cryptocurrency businesses in Australia. It allows the licensee to conduct digital currency exchange services, which include accepting and transmitting cryptocurrency from one person to another.
A digital currency wallet provider license. Holders of this type of crypto license can provide software or hardware that stores cryptocurrencies on behalf of other people, including wallet apps that allow users to send and receive coins as well as other wallets used by investors who hold large amounts of crypto assets outside exchanges’ control systems. You can check the best crypto wallets in Australia for 2022 here.
3. Trading of crypto currencies
Crypto currency trading is a legal activity in Australia. However, the Australian Transaction Reports and Analysis Centre (AUSTRAC) has indicated that it does not regulate crypto currency exchanges or platforms.
The Australian Transaction Reports and Analysis Centre (AUSTRAC) is the independent statutory body that regulates Australia’s financial sector. It’s responsible for implementing anti-money laundering legislation, including the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF).
AUSTRAC currently classifies cryptocurrencies as “digital currencies” under its regulatory guidelines. Specifically, it treats them as foreign exchange derivatives (FEDs). This means that any business that deals in cryptocurrencies need to be registered with AUSTRAC.
Cryptocurrency exchanges are regulated by AUSTRAC under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).
Despite the lack of regulation, Australia has a great track record of being open to new technologies and new ideas.
This means that there’s a lot of potentials here for cryptocurrencies, especially if they can be used in ways that make them even more useful than fiat currencies.