TL;DR
Australia has been paying close attention to the potential of blockchain technology and actively promoting the industry since its inception. With the world's 12th largest GDP, high purchasing power, and open business culture, it has been a market with many opportunities in the web3 industry.
However, due to a series of events, the regulatory authorities have taken a somewhat conservative stance. In particular, there have been a number of cases where financial institutions and banks have shown a negative stance by blocking the deposit and withdrawal of virtual assets, limiting the structural growth of virtual assets for the time being.
Although the development of the cryptocurrency and Web3 market in Australia in the immediate future look unclear, it is worthwhile to expect the overseas expansion and growth of some Web3 initiative projects such as ImmutableX and STEPN that originated in Australia.
Introduction
Australia is an economically stable country with a global GDP ranking of 12th and a distinctive open culture based on multiculturalism, making it a highly sought-after market for leading global companies. With English as an official language and familiarity with Anglo-American culture, many global companies are looking to use Australia as a key base for their Asia-Pacific operations.
In addition, Australia is one of the leading countries in the global fintech industry, and there is a thriving blockchain research and innovation environment. In fact, blockchain is the fastest-growing technology in the Australian fintech ecosystem. According to KPMG's ‘Australian Fintech Industry 2022 report’, the number of blockchain-related companies grew by approximately 19% in 2022 compared to 2021, with blockchain companies accounting for approximately 11% of the total fintech industry in Australia. These geographic, cultural, and industrial advantages make Australia a promising future Web3 market.
History of the Australian government's cryptocurrency regulatory policy
The Australian government has recognized the potential of blockchain technology and has been actively trying to foster the blockchain industry. As part of its efforts to promote the growth of fintech businesses that utilize blockchain technology, the Australian government has exempted cryptocurrencies such as Bitcoin from VAT since July 2017, treating them the same as "money" rather than goods or assets. In addition, to ensure that blockchain technology can grow rapidly with state support, the Australian government released the National Blockchain Five-Year Roadmap in February 2020 and formed the ‘Australian National Blockchain Roadmap Steering Committee’ to express its strong commitment to the blockchain industry.
However, due to the lack of a regulatory framework that directly addresses the cryptocurrency industry in Australia, there is a shortcoming when it comes to regulating cryptocurrencies as investment assets. In contrast, Asian countries such as South Korea, Japan, and Hong Kong have announced their own regulatory frameworks for cryptocurrencies. The European Union has also passed the ‘Markets in Crypto Assets (MiCA)’ legislation, leaving Australia with the impression that it is lagging behind.
Australia's cryptocurrency regulations are now taking shape
Here's a look at the history of crypto policy in Australia. Since April 2018, cryptocurrency exchanges have been required to register as Digital Currency Exchanges (DCEs) with the Australian Transaction Reports and Analysis Centre (AUSTRAC), the Australian government's financial regulator. This appears to be an anti-money laundering and counter-terrorism financing (AML/CTF) requirement, rather than a regulatory restriction for crypto service providers.
However, as the interest in cryptocurrencies among Australian citizens began to surge, the Australian government recognized the urgent need to regulate cryptocurrencies. In March 2022, the Australian Treasury released a research report on cryptocurrency regulation. The report defined a separate classification of crypto service providers, Crypto Asset Secondary Service Providers (CASSPrs), to address the broader crypto ecosystem and demonstrated its commitment to building a crypto regulatory framework.
The CASSPrs service provider types are as follows:
Custody and storage of cryptoassets: In the case of utilizing software/hardware to store or process private keys
Exchange, brokerage, and trading services for virtual assets: In the case where the service provider facilitates access to virtual assets
Market operations: In the case of facilitating peer-to-peer exchange of crypto
As such, the Australian government has been working to establish a regulatory framework for cryptocurrencies. Unfortunately, there was a setback in 2021 with a series of bad news for the cryptocurrency market, such as the Terra-Luna and FTX cases. Two Australian crypto exchanges, ACX.io and MyCryptoWallet, went bankrupt in quick succession, causing significant investor losses. By the end of 2022, more than 50,000 Australian crypto investors were financially affected by the FTX bankruptcy.
As a result of these events, the Australian government's top priority for crypto has shifted from 'fostering the industry' to 'protecting investors'. In October 2023, the Australian Treasury released a comprehensive and clear regulatory approach to address all crypto-related services that have fallen through the cracks of existing regulation, with the aim of protecting investors. The key points of the report include:
Conservative regulation under existing financial services laws, rather than separate crypto-specific regulations.
More comprehensive regulation of the crypto ecosystem, but with greater certainty and clarity.
For example, cryptoassets are regulated even if they are financial instruments or non-financial instruments with financial functions. Providers of crypto services that fall under the proposed regulation will need to obtain an Australian Financial Services License (AFSL).
A rocky future ahead for Australia's Web3 market
However, some critics have argued that this approach to regulation is an ill-fitting model that essentially shoehorns cryptocurrencies into existing financial services regulation and hinders the innovation that cryptocurrencies can bring.
In addition, in the wake of the global economic downturn, coupled with adverse developments in the cryptocurrency market, investment in the Web3 space in Australia has fallen sharply. This is expected to further cool enthusiasm for the Web3 market. In fact, from being the second largest sector in terms of investment in Q1 2022, Web3 investment fell out of the top 20 in Q1 2023.
For example, the Australian Stock Exchange (ASX) announced plans to adopt blockchain technology in 2016. However, the project was abruptly abandoned after six years of development due to technical difficulties in implementation and uncertainty that a large-scale stock trading system based on a distributed ledger could operate reliably. The company even laid off more than 200 employees involved in the project, effectively abandoning the blockchain business.
In addition to this, the four major Australian banks have recently begun to turn their backs on certain cryptocurrency exchanges by announcing that they will block withdrawals. Even Commonwealth Bank, the largest bank in Australia has announced that it agrees with the policy of blocking withdrawals from exchanges. This is a big blow considering the fact that the bank had been the most proactive regarding blockchain technology, announcing support for Bitcoin, Ethereum, and other cryptocurrency payments and acquiring a stake in cryptocurrency exchange Gemini. The loss of support from traditional financial bodies seems to be a result of the growing number of crypto fraud crimes and the loss of trust in the crypto market. In fact, according to research by the non-profit Australian Financial Crimes Exchange (AFCX), crypto fraud is so prevalent that 47% of frauds in the last month involved crypto.
Can we still look forward to a Web3 market in Australia?
Due to these difficult circumstances, an active web3 market and cryptocurrency market in Australia in the near future seems unlikely. Nonetheless, there are several factors that may facilitate future market growth:
High economic strength and purchasing power, ranking 12th in global GDP.
Open immigration policies that respect multiculturalism and a global-friendly business environment.
A well-established ecosystem for startups; there are still high expectations for startups originating in Australia to go global.
The high level of interest and understanding of cryptocurrencies and blockchain among Australians. According to Coinbase's survey results, more than 90% of Australian respondents showed a high level of awareness of cryptocurrencies, outperforming other countries.
In addition, there are 364 automated teller machines ATMs in Australia, which exceeds the total number of ATMs in the Asia-Pacific region and ranks third globally. These statistics demonstrate the high level of understanding and utilization of crypto by Australians. In addition, Australia is expected to revitalize its Web3 industry, led by global Web3 initiatives such as ImmutableX and STEPN.
Conclusion
Australia has been paying great attention to the potential of blockchain technology and actively promoting the industry since the early days of blockchain, but the market has been slow to develop due to a series of bad news in the virtual asset market and the broad and unclear characteristics of virtual assets. However, as the interest in virtual assets among Australian citizens has increased, the Australian government has gradually recognized the need for regulation. In October 2023, the Australian Treasury released a report on the virtual asset regulatory framework targeted for 2024. This is expected to be an opportunity for the Australian Web3 market to enter the regulatory sphere.
However, it is important to note that the Australian government's regulatory proposal is only a report suggesting the direction of approach. It is expected that it will take a long time for the actual regulation to be announced and implemented.
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