Australia’s plan to create a competitive edge in crypto in 12 steps

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In October 2021, the Senate Committee for Australia as a Technology and Financial Hub released its highly anticipated recommendations on how cryptocurrency should be regulated. The 168-page final report boils down to 12 recommendations aimed at striking the right balance between creating legitimacy without stifling innovation.

This is a landmark report that demonstrates Australia’s clear efforts to be at the forefront of crypto investing globally. The chair of the committee, Senator Andrew Bragg, believes that “Australia can be a leader in digital assets” and is confident that it can particularly “competitively compete with Singapore, the UK and the US”.

Four key recommendations

First, the introduction of a series of new crypto-specific licenses and regulations. For too long, regulators around the world have tried to put square pegs (cryptocurrency) in round holes (traditional financial regulation). This approach underestimates the fundamental differences that exist as well as the potential of digital assets to transform the world. This report recognizes the potential of crypto and calls for a range of bespoke cryptocurrency licensing in Australia. It recommends a specific market licensing regime for digital exchanges as well as a bespoke custody regime for digital assets. The details will still need to be fleshed out, but if we get those frameworks right, it will create the legitimacy the sector needs to take off into the mainstream.

Second, the introduction of a type of Decentralized Autonomous Organization (DAO) entity into Australian company law. This recommendation is very important, as it shows that the Australian government is open to decentralized finance (DeFi) as well as crypto innovation. Wyoming is the only region I’ve heard of that has something like this in place, so it might put Australia in the spotlight. If approved, DAOs could provide a unique service that could take Australia’s economy a decade ahead in a decentralized future. However, it will also be the hardest thing to get approved by the committee, as changes to the Companies Act are sadly rare in Australia. If anyone can do it, it is Senator Bragg.

Third, improved tax rules for crypto-to-crypto transactions. Recent research from Finder shows that over 17% of Australians own cryptocurrency – the third highest adoption rate in the world. However, this growing group has had to grapple with tax rules that are confusing to say the least. Historically, crypto-to-crypto transfers have been considered a capital gain by the Australian tax authorities. The new recommendation calls for taxation only where there has been “a clearly definable capital gain or loss”. Again, the devil will be in the details on this one, but active Aussie crypto users could be the real winners.

Fourth, new tax incentives to encourage green crypto mining. The Committee recommends a 10% corporate tax cut for crypto mining companies that use renewable energy. Sounds like a smart move to support two high-growth Australian industries: renewable energy and cryptocurrency. This will be particularly important as the Committee tries to get these recommendations endorsed in the context of COP26 and growing concerns about climate change.

Related: Crypto Staking Rewards and Their Unfair Taxation in the US

Three difficult questions Deadlines for turning recommendations into law. At present, these are only recommendations and are worth as much as the political will that exists to implement them. As in other countries, politics in Australia moves slowly and it will be no different. Senator Andrew Bragg is confident he can get all the recommendations through in 12 months and I support him in doing so. His cause could also be bolstered by a growing view that crypto innovation could be a vote winner among young Australians in an impending federal election, as nearly a third of Gen Zers already own cryptocurrency. . Implications for crypto firms in the pre-reform period. While it takes a year to introduce new laws, there remain questions about what crypto companies can do in the meantime. Many submissions called for a “safe harbor” against regulation until the rules were finalized, but this was not explicitly recommended by the Committee. However, the direction of travel has been set and there is clear support for crypto innovation and recognition that new rules and licenses are needed. I would be surprised if we have seen a lot of regulatory action so far. Specificities of license and tax proposals. Many of these recommendations were sparsely detailed and it appears that the Australian Treasury will now lead these matters. The industry will be very interested to know what the requirements will be to be a custodian or a digital exchange, especially regarding capital requirements. If there is too much regulatory burden, companies will move offshore. Likewise, consumers will need more clarity on what is a “clearly definable capital gain or loss” for tax purposes. In many ways, the work begins now.

Related: Crypto Making History in 2021: Five Instances of Governments Embracing Digital Assets

Lessons for governments around the world

The crypto industry is ready to talk politics. It’s fair to say that this select committee was inundated with engagement from crypto firms, academics, top organizations, and regulators. Over 100 written submissions contributed and there were three full days of public hearings. It’s not often that an industry asks for more regulation, but that’s what’s happening here. The crypto industry around the world wants clarity and is ready to have a conversation about politics.

General reviews are more effective than siled approaches. One of the main reasons this consultation garnered such engagement is that it looked at the digital asset industry holistically rather than from just one angle. One problem we see around the world is that regulators want to look at crypto assets from their specific regulatory perspective, but large-scale innovation shouldn’t be assessed through such a narrow lens. This consultation succeeded in looking at the industry holistically while addressing specific issues. I welcome more reviews like this around the world.

Tailored policy approaches to digital assets will be needed. Digital assets have reached critical speed and the revolution can no longer be ignored. Piecemeal changes to legacy financial services policy will not work. We need policy makers around the world to work together to create tailored policies that fit their goals. Coinbase captures this well in the first pillar of its Digital Asset Policy Proposal (DAPP). The DAPP calls for “a new framework for how we regulate digital assets” that “will ensure that innovation can happen in a way that is not hampered by the difficulty of transitioning from our inherited market structure”. These Australia recommendations are an attempt to do exactly what many can learn from.

What is clear is that the world is changing. This Senate committee in Australia should be applauded for taking a holistic approach and recommending tailored policy instruments. It’s time for policymakers around the world to follow suit and examine their approach to digital assets.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Fred Schebesta is an Australian-born entrepreneur and start-up investor, founder of Global Fintech Finder, now worth over half a billion dollars. Fred recently launched blockchain investment fund Hive Empire Capital and co-founded Balthazar, a DAO platform for NFT games. With 22 years of experience building businesses, Fred just released a number one book on Amazon, Go Live! 10 principles for launching a global empire.

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