The Australian government has given an ear to the cryptocurrency industry and appointed a new committee that will oversee the development of long called for regulation in the sector which is worth trillions of dollars globally.
More than 800,000 Australians have already made crypto transactions over the last three years—a figure growing at an accelerated rate after 2021 recorded a 63 percent rise compared to 2020—using popular digital currencies such as Bitcoin and Ethereum.
The Council of Financial Regulators, composed of The Treasury, the Reserve Bank of Australia, and other government agencies, have tasked two separate groups with designing the regulation.
The first, the “Working Group on the Regulation of the Crypto-Ecosystem,” will seek to strengthen consumer confidence by developing a framework for businesses to safely store cryptocurrencies.
The second will address industry concerns of “debanking,” a phenomenon where banks have refused to do business with cryptocurrency exchange platforms—the gateway for consumers to swap out their dollars for digital currency.
The announcement comes right after Australian Treasurer Josh Frydenberg confidently revealed a new system would be up and running by mid-2022.
“With several central banks around the world now developing their own digital currencies, we cannot allow ourselves to be disenfranchised in this new digital payments era,”
To this end, Frydenburg unveiled the government was also engaged in talks over the feasibility of a retail Central Bank Digital Currency in Australia, with advice to be provided by the end of 2022.
Cryptocurrency stakeholders in Australia have long expressed concern that a lack of regulation had permitted banks to refuse business to cryptocurrency exchanges and, in the process, stifled the growth of the industry.
Swyftx—one of the country’s largest digital asset brokers with trading volumes of around $3 billion (US$2.2 billion) a month—explained that Swyftx, like many others, had many transactions delayed or halted altogether.
“These issues undermine consumer confidence in the digital assets industry because customers fear that they are being denied access to their fiat funds as a result of some form of ‘scam’ on the part of the digital asset service provider,” Swyftx said in a submission (pdf) to an inquiry in Australia’s future as a technological and financial hub.
Swyftx also accused traditional financial institutions of anti-competitive behaviour. Since then, Commonwealth Bank has become the first and only bank in Australia to allow customers to buy, sell and hold cryptocurrency.”
But a joint submission (pdf) by the Department of Home Affairs and the Australian Transaction Reports and Analysis Centre (AUSTRAC) pointed to banks’ hesitancy is based on concerns of illicit activities associated with cryptocurrency transactions.
In particular, banks had been concerned that digital currency transactions—which are currently completely anonymous—posed a greater risk of violating the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF Act).
The act has already seen Australian banks fined billions of dollars over breaches, including a $700 million fine in 2018 to the Commonwealth Bank and a $1.3 billion fine to Westpac in 2020.
Rob Nicholls, associate professor of regulation and governance at the University of New South Wales, said that financial institutions had an incentive to quell any further risk of being involved in illicit transactions.
“What you’ve got is a whole bunch of banks that have been pinged millions of dollars, and in that context, the easiest way to de-risk is to de-bank,” Nicholls previously told The Epoch Times.
However, Nicholls explained that the new regulatory framework would address this by granting cryptocurrency brokers special licences, similar to those given to banks, that shift the responsibility of illicit transactions to the brokers themselves.
Cryptocurrency and the Illicit Market
The digital asset industry has adamantly refuted the idea that cryptocurrencies pose a higher risk of illicit market transactions.
Blockchain Australia, Australia’s peak cryptocurrency body, has stated that suggestions of high levels of nefarious dealings associated with digital currency were a “myth.”
Blockchain Australia’s claims are theoretically supported by a report by Chainalysis—an organisation whose mission is to “promote the safe adoption of cryptocurrencies by building trust among financial institutions, governments, and cryptocurrency businesses.”
Chainalysis’ 2021 Crypto Crime Report (pdf) states that in 2020, only 0.34 percent—or $13.7 billion (US$10.0 billion)—worth of cryptocurrency transactions globally were associated with illicit activity.
However, while available to view openly on a public ledger, cryptocurrency transactions are inherently anonymous and notoriously difficult to trace.
It is a point of consideration that Chainalysis made in the report, admitting that the number of illegal transactions discovered was set to grow as had happened in previous iterations of the report.
Specifically, in 2020, Chainalysis predicted that illicit transactions for the year 2019 were 1.1 percent of all transactions, or around $15.3 billion (US$11.2 billion). In 2021, this figure grew to 2.1 percent, or roughly $29.2 billion (US$21.4 billion).
Cryptocurrency’s real illicit market share is unknown, with contrasting peer-reviewed research titled “Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed Through Cryptocurrencies?” estimating that per year, 46 percent, or $76 billion, of bitcoin transactions alone were attributable to illegitimate transactions.