Cryptocurrency finally mentioned in a Labor budget, sort of

The last couple of federal budgets have been devoid of cryptocurrency and blockchain mentions. This year has been a little different, with the government throwing a $7.5 million shared bone at a regulatory framework that includes digital assets.

If you go looking for “cryptocurrency” or “blockchain” in the 2024-25 budget papers, you’re not going to find anything. However, they do get a small look in via the fintech space.

According to the budget, the federal government is setting aside $7.5 million over four years (and $1.5 million per year ongoing) to “modernise regulatory frameworks for financial services to improve competition and consumer protections for services enabled by new technology”.

This will include the development and consultation on laws around licencing and regulating platforms that “hold digital assets and progress related reforms, including continuing exploratory work on Central Bank Digital Currencies, asset tokenisation and decentralised finance”.

Importantly, this is shared funding, which means the $7.5 million won’t be earmarked specifically for crypto regulation. Part of it will also go towards regulation for payment service providers and a mandated ePayments code. This will include digital wallets and electronically stored “value providers”.

SmartCompany understands that the government plans to consult on the Exposure Draft legislation for digital asset platforms by the end of 2024. The consultation process will be open for public submissions, with the Treasury working with industry bodies, consumers and regulators to help mould the regulatory framework.

This follows the government’s ‘regulating digital asset platforms’ consultation that concluded in December of 2023.

“The proposed regulatory approach focuses on the digital asset service providers who hold people’s digital assets, rather than the token itself. This minimises the exploitation of regulatory loopholes, and is designed to accommodate a future where an increasing number and variety of products are tokenised,” the paper reads.

In the Australian cryptocurrency community, there have been mixed reactions to the budget. While regulation has been welcome, some want to see the sector receive more attention from the government.

“It’s surprising not to see more support for crypto or the blockchain other than the $1.5 million a year to be shared between a range of major activities, from consulting on legislation, to exploratory work on tech like CBDCs, asset tokenisation and DeFi,” Josh Gilbert, markets analyst at eToro, said to SmartCompany.

“This sector has been deprioritised for the second year in a row despite Bitcoin’s recent fourth halving, significant retail interest, and institutions buying the asset in huge quantities. Blockchain may not be making daily headlines, but innovation is still moving at a great pace.”

Crypto exchange platform Kraken said that regulatory uncertainty around crypto has been hurting uptake.

“We have been encouraged by the federal treasury’s development of a regulatory framework for the industry that works in harmony with existing regulations around the world,” Jonathon Miller, Kraken’s managing director for Australia, said to SmartCompany.

“Implemented the right way, the Treasury’s framework will provide an additional layer of certainty to stimulate local crypto industry growth, increasing investment and the creation of high-skilled jobs, and allow Australian investors to make informed decisions about their wealth-building strategies that include crypto assets as part of a broader portfolio.”

Our take

Regulation of cryptocurrency platforms has long been a cause for concern in Australia, particularly due to the plethora of scams in the space, the impact of the FTX debacle, and the ripple effects caused by the collapse of Silicon Valley Bank (SVB) due to its cryptocurrency exposure.

While cryptocurrency doesn’t dominate the headlines in the same way it did a few years back — despite Bitcoin rallying again in recent months — it also isn’t going away. As we’ve seen over the years, interest in crypto comes in waves. Having regulation in place when mainstream interest peaks again is important for protecting consumers.

This is an argument that Labor itself made when it took aim at the Liberal government’s treatment of crypto.

“The previous government dabbled in crypto policy but never took the time to future‑proof our regulatory frameworks to protect consumers and guide this new and emerging class of assets,” Jim Chalmers and Stephen Jones said in a joint statement back in February 2023.

“We are acting swiftly and methodically to ensure that consumers are adequately protected and true innovation can flourish.”

It is worth noting that in the 2020-21 budget, the Coalition offered $6.9 million over two years for “industry-led pilots to demonstrate the application of blockchain technology to reduce regulatory compliance costs and encourage broader take-up of blockchain by Australian businesses”.

Comparatively, this is the first budget since Labor took over that has mentioned digital currencies. In the almost two years since Labor came into power, we’re still waiting on these important guardrails. During that time we saw ASIC go after two cryptocurrency platforms — Block Earner and Finder Earn — for allegedly offering unlicensed financial services products, with the former being fined and the latter having the charges dismissed in the federal court.

We knew from Labor’s token mapping exercise that it is looking for “fit for purpose” regulation that takes into account all of the complexities that with digital assets that are utilised across borders. It is not an easy task. But as we’ve seen repeatedly, it’s an easily exploitable and highly volatile area that has the power to cause massive financial damage.

We saw this in 2022 when UST stablecoin Terra collapsed, eradicating US$20 billion overnight.

Here’s hoping that by the time the 2025-26 budget rolls around, we won’t still be talking about the possibility of regulation.

To see SmartCompany‘s full budget coverage, click here.

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