analysis Last week the Senate Standing Committee on Economics handed down a detailed report following its inquiry into Australia’s emerging digital or crypto-currency sector. The release was hailed as a “watershed” moment for this financial technology — here’s why it matters, in five succinct points.
1. It’s a multi-partisan report — everyone appears to supports it
The first thing to note about this report is that it is supported by all the parties that participated in it — Labor, the Coalition, and even Nick Xenophon and the Greens. Often in reports of this nature, dissenting reports or additional comments will accompany the official chair’s version, to indicate political dissent regarding an inquiry’s findings.
The lack of any such dissenting material included with the Digital Currency report means that its recommendations are likely to be supported by any Government of the day — whether that be a Coalition-dominated Government or a Labor-dominated Government.
The Senate is often a hotbed of dissent between different parties. The fact that everyone involved in this inquiry appears to support the inquiry’s report indicates that Economics Committee chair, Senator Sam Dastyari, has been able to bring Coalition Senators such as deputy chair Sean Edwards and Matthew Canavan to a meeting of the minds on how Australia should treat digital currencies.
The importance of this cannot be underestimated. It means that the sector may, in the medium term at least, see a consistent position from successive governments on regulation. This will aid the growth of the sector and is to be strongly welcomed.
2. It recommends digital currencies such as Bitcoin be defined as currency, as well as supporting legislative changes to enable this.
Readers may recall that the Australian Taxation Office controversially defined crypto-currencies as capital assets, meaning they are subject to capital gains tax, although the ATO would not apply the tax to amounts of $10,000 or less.
The Senate Economics committee’s recommendation on this issue would reverse the ATO’s ruling, opening the door for crypto-currencies to be used as money in a much more streamlined fashion and without the same degree of inherent taxation.
This means that it will be significantly easier for financial institutions, individuals and organisations to buy and sell goods with crypto-currencies, from large amounts to small amounts. It may seem like a small change, but it is a necessary one if crypto-currencies are to achieve true mainstream use over the long term.
3. The report recommends a number of hand-off actions to other departments and agencies within the Australian Government, to further develop the issue.
For example, the report recommends that the Treasury examine the tax treatment of digital currencies in its Taxation White Paper process. It also recommends that the Government establish a Digital Economy Taskforce to further examine the crypto-currency issue, which would involve bringing in regulators such as the Reserve Bank and ASIC to examine the issue.
The importance of this also cannot be understated. If the Government takes up the Committee’s recommendations — and one would imagine that the Coalition Senators will be doing at least a little bit of pushing within their own parties for this to happen — then this will unlock and stimulate independent agencies within the Government to devote resources to this area.
4. In the absence of wider regulation, the report explicitly supports the development of a self-regulation model by the Australian Digital Currency Commerce Association, in consultation with Government agencies.
Now, the Australian crypto-currency scene is still very immature. The companies involved are largely quite new, they operate at times within grey areas of the law, and the currencies themselves are viewed as being unstable — you only have to examine the rapid value changes for popularly traded currencies such as Bitcoin to see this in action.
The ADCCA, likewise, is not a deeply established organisation. It has only come to prominence in the industry over the past couple of years.
However, the Senate Economics’ Committee’s recommendation that the ADCCA continue to develop a crypto-currency self-regulatory model does much to endorse the ADCCA and verify it’s continuing work in this area. It adds legitimacy to a sector which many in Australia’s financial services industry see as the monetary version of the Wild West. This legitimacy is desperately needed for mainstream support of crypto-currency. The Committee’s recommendation here
5. The report recommends that the Government’s current Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act consider applying the legislation’s regulations to digital currency exchanges.
While some in the crypto-currency scene will view this recommendation as the Government seeking to apply burdensome regulation towards a growing industry sector (and this is true, to some extent), such a move would also further legitimise the crypto-currency sector and level the playing field for the sector with other aspects of the financial services industry in Australia.
After all, even if you disagree with the AML/CTF legislation itself, it’s hard to argue that they should apply to some financial services organisations and not others. Implementing such controls will also help separate mature crypto-currency exchanges able to deal with the financial sector’s notoriously complex regulation from immature ones.
Of course, Australian Government regulators are already closely watching the crypto-currency industry for dodgy behaviour. In early 2014, the Australian Transaction Reports and Analysis Centre (AUSTRAC) admitted in a Senate Estimates session that it was already tracking every conversion between Bitcoins and Australian dollars.
It’s true that the Australian Parliament does not always deal well with new technologies. However, in this case, it appears the Senate Standing Committee on Economics has done a very good job of examining the crypto-currency phenomenon.
Far from expressing concern about it it — as politicians sometimes do with new technologies — the Committee has supported the continued development of the industry and pushed measures that will help it to mature. It has also done so in a multi-partisan way which will do much to ensure regulatory stability, and even recommended positive changes to legislation to aid in Australia welcoming this emerging field.
I don’t know where this technology and the crypto-currency industry is going to go from here. But at least the technology and the industry have achieved some early support from Australia’s Parliament. The next step will be to see what the Government does in response to this landmark report.