Australia plans to create crypto competitive advantage in 12 steps

In October 2021, Australia’s Senate committee, a technology and financial hub, released its highly anticipated recommendations on how to regulate cryptocurrencies.The 168-page final report boils down to 12 recommendations aimed at striking Creating the right balance of legitimacy without stifling innovation.

This is a landmark report that demonstrates Australia’s clear efforts to place itself at the forefront of global crypto investment. Senator Andrew Bragg, chairman of the committee, believes that “Australia can be a leader in digital assets” and believes it can particularly “compete with Singapore, the UK and the US.”

Four key recommendations

First, introduce a new set of cryptocurrency-specific licenses and regulations. Regulators around the world have long tried to put square pegs (cryptocurrency) into round holes (traditional financial regulation). This approach underestimates the fundamental differences that exist and the potential that digital assets have to change the world. The report acknowledges the potential of cryptocurrencies and calls for a range of bespoke cryptocurrency licenses in Australia. It proposes a specific market licensing regime for digital exchanges and a custom custody regime for digital assets. The details still need to be fleshed out, but if we get these frameworks right, then this will create the legitimacy the industry needs to move into the mainstream.

Second, the introduction of the Decentralized Autonomous Organization (DAO) entity type in Australian company law. The proposal is significant because 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 such a place, so that might put Australia in the lead. If approved, the DAO could provide a unique utility that could bring the Australian economy a decade ahead into a decentralized future. However, this is also the most difficult thing for the committee to get approval for, as changes to the Companies Act are notoriously rare in Australia. If anyone can do it, it’s Senator Prague.

Third, the tax rules for cryptocurrency transactions have been improved. A recent Finder study showed that, Over 17% of Australians own cryptocurrency – 3rd highest adoption rate in the world. However, this growing group has had to contend with tax rules that are at best confusing. Historically, crypto-to-crypto transfers have been considered capital gains by the Australian Taxation Office. The new proposals only require taxation if there is “a clearly defined capital gain or loss”. Again, the devil will be in this detail, but active Australian crypto users could be the real winners.

Fourth, new tax incentives to encourage green crypto mining. The committee recommends a 10% corporate tax discount for crypto mining companies that use renewable energy. This looks like a smart move to support two high-growth Australian industries: renewable energy and cryptocurrencies. This is especially important as the Committee seeks to sign off on these recommendations in the context of COP26 and growing concerns about climate change.

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Three tough questions

• Timeline for translating recommendations into law. For now, these are just recommendations whose value is as important as the political will to implement them. Like other countries, Australia’s politics has been slow, and this is no exception. Senator Andrew Bragg is optimistic that he can pass all the proposals within 12 months, and I support him in getting it done.His cause may also be supported by the growing view that crypto innovation could win the votes of young Australians in the upcoming federal election, as nearly a third of Gen Z already have my own cryptocurrency.

• Impact on Crypto Businesses Before Reform. If it takes a year to introduce new laws, questions remain about what crypto businesses can do in the interim. Numerous submissions called for a “safe harbor” against regulation before the rules were finalized, but this was not explicitly recommended by the committee. However, the way forward has been set, with clear support for crypto innovation and an acknowledgment of the need for new rules and licenses. I’d be surprised if we see a lot of regulatory action the way it is before then.

• Details of licensing and tax advice. Many of these proposals are not detailed and it looks like the Australian Treasury will now take the lead on these issues. The industry will be very interested to learn about the requirements to become a custodian or digital exchange, especially in terms of capital requirements. If the regulatory burden is too heavy, companies will move overseas. Likewise, for tax purposes, consumers will need to have a clearer understanding of what a “well-defined capital gain or loss” is. In many ways, the work begins now.

related: Crypto Makes History in 2021: Five Examples of Governments Embracing Digital Assets

Lessons for governments around the world

The crypto industry is ready to talk about policy. To be fair, this ad hoc committee is flooded with participation from crypto businesses, academia, peak institutions and regulators. More than 100 written submissions were submitted and three full days of public hearings were held. It’s not uncommon for an industry to demand more regulation, but that’s what’s happening here. The cryptocurrency industry around the world wants clarity and is ready to have a dialogue on policy.

Extensive scrutiny is more effective than an isolated approach. A key reason why this consultation has been so widely involved is that it looks at the digital asset industry as a whole, not just from one perspective. One problem we’re seeing around the world is that regulators are interested in looking at cryptoassets from their specific regulatory lens, but shouldn’t be evaluating broad innovation through such a narrow lens. The consultation succeeded in taking a holistic look at the industry, while still delving into specific issues. I welcome more comments like this from around the world.

A tailored approach to digital asset policy will be required. Digital assets have reached critical speed and this revolution can no longer be ignored. A piecemeal approach to traditional financial services policy will not work. We need policymakers around the world to work together to create tailored policies that are fit for purpose. Coinbase embodies this well in one of the pillars of its Digital Asset Policy Proposal (DAPP). The DAPP calls for “a new framework for how we regulate digital assets” that “will ensure innovation can occur in a way that is not hindered by the difficulties of transitioning from traditional market structures.” These proposals from Australia are trying to do exactly what many can learn from.

What is clear is that the world is changing. This Senate committee in Australia should be commended for taking a holistic approach and recommending bespoke policy tools. Now is the time for policymakers around the world to follow suit and take a broad look at their approach to digital assets.

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

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