The urgent need for crypto regulation in Australia

Having worked in regulated entities and an investment bank during the GFC, I’ve seen firsthand the value regulation can bring when it’s there and the damage when it’s not. The crypto industry, much like traditional financial sectors, needs a robust regulatory framework to safeguard against potential pitfalls and ensure stability.

Australia's approach to cryptocurrency regulation stands in stark contrast to the rapid developments observed globally. With five years of advocating for crypto regulation, I believe it's time for Australia to rethink its stance and take decisive action, to properly foster investment in local projects, businesses and assets.

Global progress on regulation

As cryptocurrency has become a more significant factor in the global investment landscape, various markets have taken different approaches to regulating the asset class.

In Europe, for instance, 26 countries have come together to establish a cohesive regulatory framework under the Markets in Crypto-Assets Regulation or MiCA. Meanwhile, Singapore's Monetary Authority (MAS) licenses and regulates exchanges as per the Payment Services Act (PSA), positioning the country as a leader in cryptocurrency adoption within the Asia-Pacific region, with approximately $627 million in funding for crypto companies in 2023 across 88 deals[1].

Japan has similarly embraced a progressive stance, recognising cryptocurrencies as legal property under the PSA, which fosters a favourable investment[2]. The UK has also made strides, with its Financial Services and Markets Act of 2023 extending regulations to all crypto assets, services, and providers. The U.S. is slowly approaching regulation as it has become a federal election subject, but users, issuers, businesses, and regulators are busy battling it out in the court system.

In contrast, Australia has struggled to make progress. This isn’t due to a lack of industry engagement. On the contrary, the Australian crypto sector has been vocal about the need for regulation, especially after the high-profile failure of FTX. This incident highlighted the critical need for a regulatory framework to prevent similar issues from occurring in the future.

The future of financial services is on-chain

My recent travels to Southeast Asia, the US, Europe, and the UAE have provided valuable insights into how the rest of the world is embracing on-chain financial services. Contrary to Australia’s cautious approach, these regions are actively integrating digital assets and blockchain technology into their financial systems.

At events like the Point Zero Forum in Zurich, traditional financial institutions are leading the conversation, not just the crypto sector. Key figures like Ravi Menon, ex-head of MAS, and Alex Weber, former chairperson of UBS, are advocating for bold and audacious goals to reshape financial services through asset tokenisation and other innovations. Their discussions reflect a broader global consensus on the need to integrate and manage risks associated with these new technologies.

Australia’s regulatory vacuum

Australia’s reluctance to embrace these advancements is disheartening. While global financial players are exploring on-chain solutions, Australian financial services and regulators remain on the periphery. The result is a growing disconnect between Australia’s financial sector and international trends.

At BTC Markets, our long-running operations leave us well-versed in on-chain financial services. However, we find ourselves sidelined, which points to a failure on the part of legislators. It is their responsibility to orient the economy for the future and safeguard it from falling behind. This lack of engagement from them not only hampers innovation but also forces talented Australians to seek opportunities abroad. The brain drain effect is real, and it’s a significant concern when considering the 450,000 jobs reliant on financial services in Australia.

The absence of a clear regulatory framework creates an environment where Australian projects and talent are pushed to operate overseas. This exposes Australian investors to greater risks as they’re deprived of the protections that a well-regulated environment would offer. Australia was heralded as an early mover in the crypto space. But instead of leading the conversation, we’re now relegated to a passive observer, missing out on the benefits of being at the forefront of financial innovation.

A call for action

Australia’s future in the crypto and financial services sector hinges on its ability to adapt and innovate. To avoid being left behind, it’s crucial for Australian policymakers to engage actively with the crypto industry and international counterparts. A proactive approach to regulation will not only protect investors but also foster a thriving ecosystem that attracts global talent and investment.

Australia must urgently reassess its stance on crypto regulation. The world is moving forward, and so should we. By adopting a forward-thinking approach to regulation, Australia can position itself as a leader in the global financial landscape rather than a cautionary tale of missed opportunity.