Digital asset and cryptocurrency regulation: Recap of 2021, and what’s ahead for 2022

With 2022 now well underway we provide a review of what 2021 held for crypto, what could be in store for 2022 and the ever-evolving regulatory landscape for digital assets and cryptocurrencies.

2021: Market volatility, mainstream cut through, and Government engagement

During a particularly volatile year in which the original cryptocurrency Bitcoin twice reached all-time high prices (before twice quickly losing half its value), many Australians who were in and out of COVID-19 lockdown and forced to stay home took the opportunity to dabble with crypto for the first time.

Beyond Bitcoin, more obscure cryptocurrencies became part of the mainstream narrative, as high profile figures like billionaire Elon Musk brought wide attention to “memecoins” like Dogecoin, which experienced price increases of over 20,000%.

Various surveys throughout 2021 demonstrated that up to 25% of Australian adults either currently or had previously owned cryptocurrencies, making Australia one of the world’s biggest adopters on a per capita basis.

One of the highest profile events demonstrating mainstream adoption of crypto was CBA’s offering of crypto trading to its customers via its retail banking CommBank app.  As we discussed in our article, CBA broke ground by allowing its 6.5million existing customers to buy, sell and hold initially 10 cryptocurrencies through the app.

During this volatility and adoption, the first steps of forming a comprehensive regulatory landscape for digital assets were being taken by the Australian government.  

At the beginning of 2021, we saw the Government shift its focus away from what had become buzzwords such as “FinTech” and “RegTech”, and towards a broader economic strategy encompassing these issues.  

This shift culminated in the Australian Senate in March 2021 changing the name of the former “Select Committee on Financial Technology and Regulatory Technology” to the wider topic of the “Select Committee on Australia as a Technology and Financial Centre”.

Throughout 2021, as the name would suggest, the Select Committee examined the opportunities for Australian consumers and businesses in Australia growing into a stronger technology and financial centre.  This included barriers to the uptake of new technologies in the financial sector, benchmarking against comparable international regimes, as well as opportunities and risks in the digital asset and cryptocurrency sector. 

The Select Committee received 88 submissions from all walks of Australian life, including consumers, small business owners, big banks, industry associations, government bodies, and academics.  It also held public hearings in August and September 2021.

As we wrote about in October 2021 when highlighting the widening crypto “regulatory gap”, one notable submission was from Michaela Juric, the operator of Bitcoin vendor “Bitcoin Babe”.  Ms Juric claimed she has been “de-banked” 91 times including by the “big 4” banks, put on a terrorism watchlist and bullied by AUSTRAC, despite contributing to the design and development of regulatory guidance for AUSTRAC, as well as the ATO and the Treasury.

The Select Committee’s final report was published towards the end of 2021, recommending much-needed regulation of the sector, including licensing digital currency exchanges, as well as custodial and depository services.  We will discuss that more in the next section as we scope out 2022.

On the conduct regulator side, in 2021 ASIC actively engaged with issues arising from the continuing convergence of finance and technology.  

Participants in a possible “pump and dump” scheme were alarmed when ASIC infiltrated their Telegram forum and issued a stern warning that they may have been breaking the law.  ASIC followed this up with a public warning that it monitors such platforms and markets in real time and will intervene to deter people from misconduct.

In a continuing theme, ASIC then publicly cautioned Australians to be wary of investing in crypto related financial products, such as options and futures, through unlicensed entities.  ASIC highlighted the risk that dealing with unlicensed entities means investor protections are not available.

In the area of enforcement, ASIC showed it would take action to protect digital assets, even if the assets themselves are as yet unregulated.  ASIC acted quickly to shut down an unlicensed and illegal  investment scheme operated by A One Multi, and obtained Court orders to preserve and recover millions in crypto assets for the benefit of consumers.

In a more positive development, ASIC released guidance on how crypto-asset related investment products, most notably exchange-traded funds or ETFs, can meet their regulatory obligations.  

This precipitated the listing of the BetaShares Crypto Innovators ETF on the ASX, breaking the record for debut trading figures.

2022: Emergence of crypto regulatory policy following consultation

As described above, 2021 was a typically turbulent year for the Australian crypto regulation environment, culminating in the seminal report from the Select Committee.  

We predict that 2022 will see more of the same, but at least following the roadmap of the report, as green shoots of sensible regulation begin to emerge.

As foreshadowed by the Treasurer, Josh Frydenberg, as he closed out the year with a speech to industry, 2022 will see the beginnings of a regulatory shake-up for crypto as well as other financial technology businesses.

This was reflected in the Government’s response to the Select Committee’s report (among other related reports), which was published on 25 January 2022. 

In relation to crypto, the Government plans to have done the following by mid-2022 (coincidentally, well after the upcoming Federal election):

• Completed consultation on establishing a licencing framework for digital currency exchanges (interestingly, no mention of regulating crypto assets themselves as financial products);
• Finalised consultation on a custody or depository regime for businesses that hold crypto assets on behalf of consumers; and
• Received advice from the Council of Financial Regulators and other relevant agencies on the underlying causes and policy responses to the complex issue of “de-banking”.

The Government has similar goals to develop a strategic longer-term plan for the payments system, including to accommodate buy now, pay later processes and digital wallets.

By the end of 2022, the Government aims to have done the following:  

• On crypto:

- “Mapped” existing crypto currencies and tokens to better inform consumers of the risks and benefits; and

- Received a report on the appropriate framework for the taxation of digital transactions and assets.

• Settled the framework for an adapted licensing system for payments businesses;
• Examined the potential of Decentralised Autonomous Organisations (companies formed on the blockchain); and
• Received advice on the feasibility of a retail Central Bank Digital Currency.

In the meantime, ASIC continues to engage with cryptocurrency related issues.  As we wrote about in January 2022, new ASIC Chairman Joseph Longo gave a wide-ranging interview on his regulatory priorities for the new year.  Among them was, unsurprisingly, crypto.  Longo treaded a fine corporate cop line, warning of the dangers of “risky crypto assets”, while at the same time supporting continuing innovation in the sector.  Longo urged consumers not to put all their eggs in the crypto basket, and to try to avoid the increased instances of scams in the sector.  This fits with Longo’s earlier caution that, due to their lack of powers in non-regulated products, consumers of crypto assets are largely “on their own" when things go wrong. 

Time will tell whether the Government’s deep and broad plans over a tight timeframe will be achieved.  The looming election, budget issues, and the seemingly never-ending COVID pandemic are obvious speed bumps.

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Anthony Jensen, Senior Associate &

Dan Mackay, Managing Director

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The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.

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