For retail traders who simply want to buy and sell bitcoin and other cryptos, the Autralian rules are simple. For those running crypto businesses or providing blockchain services, things can be more complicated – but the level of clarity provided by regulators should be reassuring.
The growth of crypto as an asset class has brought inevitable regulatory scrutiny, as lawmakers race to catch up with these new technologies. Australia has established itself as one of the more forward-thinking jurisdictions, making it a crypto-friendly country for both retail investors and crypto businesses. The process of regulation began as early as 2014, shortly after the 2013 bitcoin bubble brought crypto to its first real global prominence. Since then, there have been several landmark laws and rulings, establishing an ever-clearer compliance environment for those involved in the sector.
Are bitcoin and crypto legal in Australia?
The short answer is Yes: It’s legal to buy, sell, and hold crypto in Australia. The country legalised crypto in 2017, with regulators also stating that cryptocurrencies were subject to AML (Anti-Money Laundering) and CTF (Counter-Terrorism Financing) laws.
What this means in practice is that both individual users and businesses need to follow certain rules when buying and selling crypto. In short, it’s not about whether you trade or hold crypto: it’s how you go about doing it. Fortunately, the rules are clear and retail investors, in particular, shouldn’t have any problems.
Who can buy cryptocurrencies in Australia?
It’s perfectly legal for individuals to buy cryptocurrencies in Australia, but there are rules around the information collected in the course of doing so. Investors should seek a regulated exchange that is compliant with AUSTRAC, the country’s financial intelligence agency. This will give you the protections that consumers are routinely afforded when purchasing any other financial product.
Exchanges are required to comply with Know Your Customer (KYC) laws, which means they will need to collect certain personal information from you. You’ll likely need to submit documentation like a driver’s licence or passport when you register with an exchange. This is generally fast and easy, and is no more extensive or intrusive than registering for any other financial service like a bank or trading platform.
Bitcoin and other cryptocurrencies are treated as property in Australia, which has different implications than if they were treated as a currency. Any difference between your buying and selling price will be counted as a capital gain (or loss), and will therefore be subject to Capital Gains Tax – just like shares or other property. You should therefore keep accurate records of every trade you make, because if your profits total more than the annual allowance you will need to declare it and pay Capital Gains Tax. The good news is that, since bitcoin is classified as property, it’s no longer subject to Australia’s Goods and Services Tax (GST), which was the case previously.
What rules and regulations do exchanges need to follow?
So long as individuals are using regulated exchanges, they shouldn’t have any issues. Exchanges themselves, though, bear the brunt of the compliance burden. The aim is to prevent cryptocurrencies from being used for money laundering or financing terrorism and other crime. Exchanges are expected to flag any suspicious activity, and the penalties for non-compliance can include fines and even criminal charges. As is the case in several other jurisdictions, Australian exchanges are forbidden from listing some privacy coins such as Monero, since these aim to intentionally obscure the transaction trail recorded on the blockchain and are often used for criminal purposes.
Exchanges are required to hold an Australian Financial Services (AFS) licence, just like other financial services providers. Additionally, AUSTRAC rules state that exchanges must apply to register with the agency, and this registration must be renewed every three years. Exchanges’ details must be kept up to date, and AUSTRAC reserves the right to deny, suspend or cancel registration, or impose other conditions. Operating exchanges must verify the identities of all customers, keep relevant financial records, and meet AML/CTF reporting obligations.
Further laws relating to ICOs may also impact exchanges, since they may list tokens launched in these token sales. For example, tokens that are classified as financial products (see below) should clearly be identified as such, and users should have access to all relevant information about these products.
Lastly, though it might seem self-evident, exchanges must comply with all Australian laws. This is stated explicitly by regulators; the fact that cryptocurrencies are decentralised and global technologies does not absolve Australian organisations from following the same laws as any other domestic business.
What is the legal framework for conducting ICOs?
The rise of Initial Coin Offerings (ICOs) meant that potentially anyone had a way to raise money for new crypto projects. Investors had few protections, and many projects failed due to poor management or overoptimistic promises, with others proving to be outright scams.
Regulators therefore naturally took a keen interest in ICOs, and in May 2019, the Australian Securities and Investment Commission (ASIC) released new guidance for ICOs. Some of these rules also impacted exchanges’ operation.
One of the key elements of the guidance involves the type of token issued by the ICO. Tokens can take many forms, including utility tokens and governance tokens. Some, however, are classed by the regulators as financial products, akin to shares or other securities, and are therefore treated as such and are subject to the corresponding legislation. For example, if an ICO issuer sells interest in a managed investment scheme, they must meet the rules laid out for such an organisation under the Corporations Act, ASIC Act and Australian Consumer Law. Additionally, like exchanges, they must meet their AML and KYC obligations.
The bottom line is that if a token – whether sold at ICO or otherwise – is effectively a financial product, then it is treated as such under the law. The fact that it is hosted on the blockchain does not change the issuer’s regulatory obligations.
In addition, ASIC specifies that ICOs must not mislead their customers, identifying several means by which issuers may seek to do so:
- Giving the impression that the ICO tokens are not a financial product, or claiming that the asset has been approved by regulators, when that is not the case
- Using social media to exaggerate the perception of public interest in the ICO
- Undertaking (or organising) trading activity that gives a greater sense of public interest in the ICO than is actually the case
- Withholding relevant information about the ICO or token from the public
A matter of common sense
The growth of the crypto sector has prompted Australian regulators to release several major pieces of guidance over the past seven years. As the space continues to evolve, it is likely that there will be further legislation – for example, to regulate the new DeFi sector. In most cases, however, regulators have taken a light-touch and logical approach that aligns cryptocurrency users and businesses with existing legislation.
Regular retail buyers and traders of cryptocurrency need do very little beyond exercising common sense, taking care to use regulated exchanges and keep records of the trades they make (with equivalent AUD amounts) for tax purposes – just as they would be expected to do when trading shares or other assets.
For crypto businesses like exchanges, the rules are no more onerous than they are for other fintech businesses. Nonetheless, this is still a new area and there is often room for interpretation and uncertainty. (For example, should a token be classed as a financial product? What activities constitute ‘exchange’ of cryptocurrencies and therefore require the business to collect KYC information?) Many companies, especially larger organisations, will hire a compliance officer and retain legal counsel to seek opinion when they need it to support the decisions they make.