Regulation of Cryptocurrency in Australia

This paper discusses the extent of cryptocurrency regulation in Australia, including taxation, financial regulations, and consumer protection. It explores individual views on effective regulation, possible reforms, and the problems likely to arise in the future.

Running head: REGULATION OF CRYPTOCURRENCY IN AUSTRALIA 1
Regulation of Cryptocurrency in Australia
Student’s Name
Institutional Affiliation

REGULATION OF CRYPTOCURRENCY IN AUSTRALIA 2
Regulation of Cryptocurrency in Australia
Introduction
The Australian government is heavily looking into regulatory approaches regarding
digital currencies. The Senate reviewed relevant agencies, completing its inquiry into the issue
and explored the risks and opportunities being presented through the advent of cryptocurrencies
in 2015. By then, the Australian taxation office had presented a ruling that suggested the taxation
of transactions involving digital currencies. Following the fact that cryptocurrency is a
fundamental area of focus in Australia, this paper is set to discuss the extent to which the
currencies are regulated, individual views on effective regulation, possible reforms and the
problems likely to arise in the future.
Summary of Literatures
According to Richardson, et, al. (2017), transactions involving cryptocurrencies are
considered an “akin to a barter arrangement,” thus should involve taxation consequences.
individuals who engage in cryptocurrency transactions are therefore advised to keep a record of
the amount (in Australian dollars), date of transaction, the purpose of transactions and identity of
the other party (Pollock, 2019). ASIC advises investors to check if an ICO issuer is a registered
and licensed company in Australia (Chohan, 2017). According to AUSTRAC (2018),
cryptocurrency is subjected to counterterrorism financing and anti-money laundering legislation.
A similar aspect has been emphasized by The Law Library of Congress (2018). Irwin, & Dawson
(2019) stresses on the introduction of internet-based approaches in the regulatory programs.
According to Gregory (2018), cryptocurrency may lead to economic sabotage. A similar aspect

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has been supported by Ally, Gardiner, & Lane (2016); Anthony, Prasad, & Sadique (2018) and
Chohan (2017).
Extent of Cryptocurrency Regulation in Australia
Cryptocurrencies are subjected to a set of regulations in Australia. Firstly,
cryptocurrencies are subjected to taxation. The taxation of cryptocurrencies is guided by a set of
rulings. According to the rulings, transactions involving cryptocurrencies are considered an “akin
to a barter arrangement,” thus should involve taxation consequences (Richardson, et, al., 2017).
According to the Australian Taxation Office, cryptocurrency transactions are neither foreign
currency or money. The individuals who engage in cryptocurrency transactions are therefore
advised to keep a record of the amount (in Australian dollars), date of transaction, the purpose of
transactions and identity of the other party (Pollock, 2019).
Additionally, cryptocurrencies are considered as assets which invite tax expenses. In
cases where goods and services are purchased for consumption, any capital that is gained or lost
through the disposal of the bitcoin will be disregarded. Any item that is purchased by a business
company is subjected to a tax equivalent to the arm's length value of the item. The business
organization shall also be liable for a BST fee which is calculated on the market value of the
services and goods acquired. The BST fee is ordinarily equal to the fair market value of the
bitcoin during the transaction period. Entities which engage in buying and selling of bitcoins as
an exchange service are liable of taxation fee on any income gained excluding all the expenses
incurred. The Senate committee also recommended GST consequences upon accepting digital
currency as part of business as a strategic approach in preventing double taxation under the GST
system.

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Cryptocurrencies are also subjected to financial regulations and the protection of
consumers. According to the ASIC Act of Corporations Act, cryptocurrencies are not considered
financial products. ASIC's Money Smart website provides plenty of information and data
regarding cryptocurrencies. This information is significant in protecting individuals against
trading of digital currencies. This information includes telling people about the fact that
exchange platforms involving the exchange of digital currencies are not regulated thus all risks
like hacking and failing of the system is not subjected to legal recourse. Also, digital currency is
neither guaranteed by the government, nor bank thus fluctuates significantly over a short period
including theft from hackers leaving an individual with little hope to regain the loses. This
information by ASIC has played a significant role in protecting the consumers of digital
currency. A separate page on the website provides important information about initial coin
offerings (ICO). ASIC advises investors to check if an ICO issuer is a registered and licensed
company in Australia (Chohan, 2017). This data is meant to make the investors aware that if the
company is not registered, then the chances of government protection in case things go wrong
are very minimal. Otherwise, there are also associated risk factors when dealing with registered
companies. For instance, when ABC reported a loss of AU$1.2 million from more than 1200
Australians who had engaged in cryptocurrency, the ASIC commissioner was quoted saying that
it is clear that the loss arose from scum thus investors should avoid investing unless they are
ready to lose their funds.
Currently, cryptocurrency is subjected to counterterrorism financing and anti-money
laundering legislation (AUSTRAC, 2018). The execution of this rule followed the introduction
of a bill in parliament to include cryptocurrency exchange providers into the CTF/AML
regulatory regime (The Law Library of Congress, 2018). The providers of cryptocurrency

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exchange are now regulated under the rules of FATF with a fundamental aim of reducing the
risks associated with digital currency. All the digital currency exchange providers are expected to
register at the Australian Transaction Report and Analysis Centre and execute a CTF/AML
program. This registration is aimed at reducing money laundering and identifying and verifying
the customers of the digital currency exchange providers (Koenraadt, & Leung, 2019). The
providers are also required to report and make a record of suspicious transactions.
Response to the Current Cryptocurrency Regulation in Australia
Even though more efforts have been initiated by the Senate in regulating
cryptocurrencies, the current regulatory environment is still not sufficient. Empowering
individuals about the risks associated with digital currencies is not a solid solution to the problem
because not everyone in Australia can access the ASIC website. Furthermore, a reliable solution
should be implemented to reduce the risks available to the investors rather than addressing the
issues to the public. The current generation is improving tactically as technology advances.
Therefore, legislation should be accompanied by internet-based actions to promote safety to the
laundering crisis in the cryptocurrencies (Irwin, & Dawson, 2019).
Reforms to Strengthen the Current Digital Currency Regulatory Environment
Following the fact that the current cryptocurrency regulatory environment is not
favourable, a set of reforms is necessary to promote efficiency. Firstly, the government of
Australia should ensure that the digital currency exchange providers pay a security fee which
shall be responsible for compensating the investors in cases of money laundering and other theft
issues presented to the government. This strategy will ensure that all the digital currency

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exchange providers strengthen the security of their platforms against money laundering.
Additionally, the reform shall strengthen the hope of the investors in cryptocurrency.
Additionally, the government of Australia should initiate a program that will promote the online
submission of the financial statements by the digital currency exchange providers. This strategy
will enhance the effective taxation of digital currency exchange businesses. The strategy will
also ensure the financial position of the platforms is assessed on an annual basis to tress the
security of the consumers. If the financial position of the platform puts the investors at a higher
risk of losing their funds, the platform should be dissolved by the government as an amount
equivalent to the contribution and shares of the investors deducted as compensation.
Possible Future Problem
Cryptocurrency might lead to economic sabotage if care is not undertaken (Gregory,
2018). Usually, cryptocurrencies are associated with heavy profits and losses which reflect the
currency of a country. The loss is usually compensated through taxation. However, improvised
strategies should be imposed to promote effectiveness in the taxation process. Failure to initiate
an effective taxation program shall ultimately lead to heavy losses to the economy (Ally,
Gardiner, & Lane, 2016). For instance, the cryptocurrency agencies do not work in correlation
with the banks in the country due to an ineffective regulatory system (Anthony, Prasad, &
Sadique, 2018). Therefore, the central government of Australia may fail to effectively assess the
accurate position of the national currency in relation to the foreign currencies which may
negatively impact the economy. As the U.S dollar loss value due to the introduction of plenty of
cryptocurrencies, centralization of the world economy is also impacted (Chohan, 2017). The
national currencies shall be driven by the forces of demand and supply. In so doing, the

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international economy shall be out of control thus negatively impacting some economies at the
expense of the others.
References
Ally, M., Gardiner, M., & Lane, M. (2016). The potential impact of digital currencies on the
Australian economy. arXiv preprint arXiv:1606.02462, 8(12) 56.
Anthony Das, C., Prasad, K., & Sadique, M. S. (2018). Cryptocurrency a Bit unregulated?
In International Conference on Business and Banking V (ICBB V), 7(2) 32.
AUSTRAC (2017). Cryptocurrency regulations in Australia [online]. Retrieved from:
https://complyadvantage.com/knowledgebase/crypto-regulations/cryptocurrency-regulations-
australia/
AUSTRAC (2018). New Australian laws to regulate cryptocurrency providers [online].
Retrieved from: http://www.austrac.gov.au/media/media-releases/new-australian-laws-
regulate-cryptocurrency-providers
Chohan, U. W. (2017). Assessing the Differences in Bitcoin & Other Cryptocurrency Legality
Across National Jurisdictions. Available at SSRN 3042248, 34(14) 40.
Chohan, U. W. (2017). Initial coin offerings (ICOs): Risks, regulation, and accountability.
Gregory, D. (2018). Cryptocurrency and its forensic significance (Doctoral dissertation,
Murdoch University), 45(12), 73.
Haig, S. (2019). Whole foods and major retailers now accept Bitcoin via the Spedn App [online].
Retrieved from: https://news.bitcoin.com/aussie-banks-cold-cryptocurrency-businesses/

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Irwin, A. S., & Dawson, C. (2019). Following the cyber money trail: global challenges when
investigating ransomware attacks and how regulation can help. Journal of Money
Laundering Control, (just-accepted), 13(71), 12-35.
Koenraadt, J., & Leung, E. (2019). The Impact of Regulation and Transparency in the
Cryptocurrency Market. Available at SSRN, 12(24) 46.
Pollock, D. (2019). How Australia is becoming a Cryptocurrency continent: Markets.
Regulations and Plans [online]. Retrieved from: https://cointelegraph.com/news/how-
australia-is-becoming-a-cryptocurrency-continent-markets-regulations-and-plans
Richardson, M., Bosua, R., Clark, K., Webb, J., Ahmad, A., & Maynard, S. (2017). Towards
responsive regulation of the Internet of Things: Australian perspectives. Internet Policy
Review, 6(1).
The Law Library of Congress (2018). Regulation of Cryptocurrency: Australia [online].
Retrieved from: https://www.loc.gov/law/help/cryptocurrency/australia.php

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Appendix
Retrieved from: Haig (2019).

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Retrieved from: (AUSTRAC, 2017).