There were the sounds of a virtual dam bursting in Australia recently as the nation’s largest bank, the Commonwealth, announced a move to accept crypto-currency accounts.
The traditional financial sector in Australia has had its head in the sand on the rise of the crypto world over the last few years. But its inexorable rise and momentum have shown the inevitability of a crypto universe.
Crypto exchanges have been unbanked regularly, and one crypto player — known as Bitcoin Babe — claims to have been denied service at Australian banks 91 times over the last few years.
So in the well-trodden path of acting for fear of missing out, Commbank is rolling over, and they are not the only ones, it seems.
Share market announcements are humming with news of new crypto-based Exchange Traded Products (ETFs), and even some of the biggest Australian pension funds are talking about crypto investments.
This is only one part of the story, however, and an October report from a Federal Parliamentary committee has — unusually — hit the nail on the head.
Digital Financial Center
Beyond giving people the opportunity to speculate on cryptocurrencies many of them do not understand, the Senators who comprised the Select Committee on Australia as a Technology and Financial Centre understood that bringing the crypto industry into the regulatory mainstream is about fostering technology and business innovation. It is also about keeping digital entrepreneurs from leaving Australia for more welcoming jurisdictions.
The committee made 12 recommendations, all of them loudly welcomed by the industry, around creating a new regulatory regime for digital currency exchanges, custodial and depository services, and changes to anti-money laundering and counter-terrorism laws to make them “fit for purpose.”
There were also recommendations suggesting new laws to regulate the rise of Decentralized Autonomous Organisations which use cryptocurrencies to create alternative marketplaces.
“I’m concerned about the brain drain and the loss of good people really because you’re already seeing Australian crypt markets seeking licenses offshore,” said Senator Andrew Bragg, the committee chair and the prime mover for the report.
Towards Decentralized Finance
What is at stake is the development of financial ecosystems built on “decentralized finance,” built on blockchain and using tokens rather than national currencies.
In this “DeFi” world, people will be able to purchase a house directly from a vendor without the need to go through banks, lawyers, and real estate agents.
Property could be placed on a DeFi platform under a mortgage agreement, with deeds put up as tokenized collateral. In the event of default, the deeds would automatically shift to the lender.
DeFi use cases promise to remove friction from the established system for financial and asset transfer, and at the same time, can reduce cost and increase speed and transparency.
Potential use cases include insurance, asset management, and loyalty schemes, where points accrued can be tokenized with the potential to create a hermetically sealed financial ecosystem separate from the mainstream.
Creating this world will require smart people with innovative ideas and access to venture and start-up capital. In short, this is a new industry waiting to explode but which is hampered by a regulatory regime that worked in the analog 20th century but doesn’t take into account developments in the digital 21st.
Inside the perimeter
The smart thing about the Senate report is that it understands that bringing digital assets inside a tailored regulatory perimeter is a better solution than forcing the crypto world of DeFi to operate on the outside or offshore.
Even now, the Australian Taxation Office estimates there are over 600,000 Australian taxpayers who have invested in digital assets in recent years, and surveys show that the average Australian crypto portfolio grew by 258% in the last financial year.
The mainstream Australian Securities Exchange is under pressure from fund managers to allow crypto products. The rival local exchange Chi-X sees itself tailor-made as a home for the new industry.
With all this pressure, the legislators understand that the game is Australia’s to lose. If Australia legislates to recognize Decentralised Autonomous Organisations, it will be the second jurisdiction in the world – after Wyoming – to do so.
So much has been written about Australia becoming a regional or even global financial center, and the crypto industry has been drifting to Singapore, where it sees a more welcoming regime.
But if Australia implements the bold recommendations of the Senate report, it has an opportunity to — for once — emerge as the leader in the new world of digital finance.
The industry is more than ready, and it's up to the legislators to follow through on their convictions and deliver.
Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and DigitalWorkforceTrends, and the editor of NextGen Connectivity. His fascination is with how businesses are reinventing themselves through digital technology and collaborate with others to become completely new organizations. You can reach him at [email protected].
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