\n“Look, it’s very risky \u2013 there’s very high volatility, and all investors need to understand the risks.<\/p>\n<\/blockquote>\n<\/aside>\n
“It’s hard to find another asset class that’s generated higher returns over the past few years and that’s set to continue.”<\/p>\n\n
However, other big investors disagree cryptocurrencies give\u00a0higher returns \u2013 relative to the risk \u2014 and are steering away from crypto.<\/p>\n
PGIM, a global $US1.5 trillion asset manager, recently released a report calling cryptocurrency “portfolio Kryptonite”.<\/p>\n
About 11 million superannuation members looking to build up their super retirement nest eggs\u00a0have some exposure to the firm’s institutional investment.<\/p>\n
Its chief investment officer Taimur Hyat argued\u00a0that crypto is not a quite currency and that there is little evidence that cryptocurrencies deliver diversification compared with mainstream financial assets.<\/p>\n\n\n
<\/div>\n<\/div>
PGIM chief operating officer Taimur Hyat says cryptocurrency is portfolio kryptonite.(Supplied<\/span><\/span><\/span>)<\/cite><\/figcaption><\/figure>\nHe noted\u00a0that with cryptocurrency like bitcoin “you get the same risk-adjusted returns as other asset classes, but you have far more volatility”.<\/p>\n
Mr Hyat said it does not act as effective hedge against fluctuation from factors like COVID.<\/p>\n\n\n“We asked, do they [peoples’ investments in cryptocurrencies] absorb shocks over time? Crypto does not achieve that.”<\/p>\n<\/blockquote>\n<\/aside>\n
Mr Hyat said there is now the risk that increased regulation could see peoples’ investments further tank as\u00a0“there’s uncertainty about what the regulations will be”.<\/p>\n
Australians losing out because crypto is not regulated<\/h2>\n Aside from the investment fundamentals, there’s also questions about the lack of consumer protections when investments fail.<\/p>\n
Mr Veyret, from Choice, wants to see the same rules that apply to stock markets, apply to digital assets.<\/p>\n
Loading<\/span><\/span><\/p>\n\n\n“Right now, conduct such as market manipulation, which is banned and Australian stock markets are actively promoted on cryptocurrency exchanges,” he said.<\/p>\n<\/blockquote>\n<\/aside>\n
The evidence now shows that stablecoins such as TerraUSD might not actually be that safe, he said.<\/p>\n
“It’s really concerning that these exchanges are advertising… terms like safe and also really high yield.<\/p>\n
“Businesses and exchanges have an obligation to ensure that they’re not engaging in misleading and deceptive conduct.”<\/p>\n
Consumer Action Law Centre (CALC) chief executive Gerard Brody is calling for new laws to be introduced, requiring\u00a0crypto platforms to be obliged to detect, prevent and reimburse people from scams.<\/p>\n\n\n
<\/div>\n<\/div>
Gerard Brody says crypto should not be marketed to Australians as safe.(ABC<\/span><\/span><\/span>)<\/cite><\/figcaption><\/figure>\n“We regularly hear from callers to our advice lines who have lost astounding sums of money \u2014 often their entire life savings \u2014 to scams occurring on crypto platforms,” he said.<\/p>\n
“The reality is that these platforms are a conduit for organised criminals and money launderers.”<\/p>\n
CALC is also advocating for restrictions on advertising and marketing of crypto to the general public, in its\u00a0submission to Treasury’s review of the sector.<\/p>\n\n\n“Crypto is intentionally complex and should not be advertised and marketed to the general public \u2014 the use of celebrity endorsement and association with sports teams is particularly worrying,” Mr Brody said.<\/p>\n<\/blockquote>\n<\/aside>\n
Regulation is imminent but how will it look?<\/h2>\n US Treasury Secretary\u00a0Janet Yellen has stated that stablecoins are anything but stable, while flagging regulation of the wider digital assets market.<\/p>\n
“Stablecoins raise policy concerns, including those related to illicit finance, user protection, and systemic risk,” Dr\u00a0Yellen said.<\/p>\n\n\n
<\/div>\n<\/div>
US Treasury Secretary\u00a0Janet Yellen has stated that stablecoins are anything but stable, while flagging regulation of the wider digital assets market.(AP: Susan Walsh<\/span><\/span><\/span>)<\/cite><\/figcaption><\/figure>\n“And, they are currently subject to inconsistent and fragmented oversight,” she said, adding that the broader ecosystem should governed in order to allow “responsible innovation”.<\/p>\n
From a local perspective, Australia’s new Labor could impose tougher regulation. In the lead up to the election Labor’s Stephen Jones had said that would\u00a0consider crypto regulation as part of a broader overhaul of the digital payments system.<\/p>\n
If that happens, corporate watchdog ASIC would be responsible for overseeing changes.<\/p>\n
A spokesman for ASIC said the regulator does\u00a0not currently regulate crypto assets unless they are legally considered as financial products, “and it is not always clear whether a particular crypto-asset product is within our jurisdiction”.<\/p>\n\n\n“This means you may not be protected if a platform fails or is hacked,” the ASIC spokesman\u00a0said.<\/p>\n<\/blockquote>\n<\/aside>\n
He said in the meantime, ASIC supervises products traded on the stock exchange,\u00a0<\/strong>such as the recent ETFs with crypto as an underlying asset.<\/p>\nASIC also investigates conduct breaches such as misleading or deceptive behaviour, where they involve crypto-assets that are financial products.<\/p>\n
Joni Pirovich, a lawyer specialising in blockchain and digital assets, said crypto tokens are being used to experiment how to do financial transactions better, cheaper and faster.<\/p>\n\n\n
<\/div>\n<\/div>
Joni Pirovich, a lawyer specialling in blockchain and digital assets, warns that regulation should not stifle innovation.(Supplied<\/span><\/span><\/span>)<\/cite><\/figcaption><\/figure>\n“There are more than 10,000 of these tokens that people can purchase and trade, which is far beyond the current resources of any regulator to supervise meaningfully,” she said.<\/p>\n
“But there’s a desire from policymakers around the world to make sure crypto tokens are brought into a supervised net.”<\/p>\n\n
That policy conversation has been happening for the past six years, but the collapse of Terra (which trades under the code “UST”) and Luna has people refocused on it.<\/p>\n
“The average person had invested about $50,000 in UST and that investment has shrunk to nil,” she said.<\/p>\n
“There’s new calls for consumer protections, but uncertainty about the best approach: whether mums and dads should maintain choice to access these risky tokens or whether to make the issuers responsible for preventing investment from mums and dads.”<\/p>\n
But the issuer is often not linked to one country. There is often a global team of people involved in coming up with the token, its features and what it can do.<\/p>\n
She said\u00a0the other option is to have new law, enforced by a regulator like ASIC, that requires an issuer to have controls that cap mum and dad investor crypto deposits to no more than, say, $5,000.<\/p>\n
And a final option, which she does not recommend, is to ban these products for retail investors.<\/p>\n\n\n“You can’t eliminate risks ever. Being informed of the risks and being educated is what supports choice and a growing economy.”<\/p>\n<\/blockquote>\n<\/aside>\n
Meanwhile, US lawyer Moe Vela believes crypto needs to be regulated but urged\u00a0the current US administration to not fall into the trap of a regulatory environment that will stifle growth under the guise of protecting consumers.<\/p>\n
Mr Vela was\u00a0director of administration for US President Barack Obama, where he worked closely with Joe Biden.<\/p>\n
He also worked with former\u00a0<\/strong>Vice-President Al Gore in the Clinton White House, and is a director at Unicorn Hunters, the company building a cryptocurrency called Unicoin.<\/p>\n\n\n
<\/div>\n<\/div>
Former adviser to Joe Biden, Moe Vela, says the US administration needs to be careful about what regulation it imposes on the sector.\u00a0\u00a0(Supplied<\/span><\/span><\/span>)<\/cite><\/figcaption><\/figure>\n“Regulation can be healthy if written in the spirit of fostering innovation and creating an inviting environment to new and existing investors,” he said.<\/p>\n\n\n“I am optimistic that the regulations that are inevitably forthcoming will be of a nature that will bring more confidence and security to the industry and thus spur more investment.”<\/p>\n<\/blockquote>\n<\/aside>\n
Can crypto pose a wider risk to financial system stability?<\/h2>\n Tony Richards was head of payments at the Reserve Bank for 10 years.<\/p>\n
He said\u00a0too many people are speculating on digital currencies, unaware of the risk that its value “can fall sharply or even to zero”.\u00a0<\/p>\n\n\n
<\/div>\n<\/div>
Tony Richards says cryptocurrency failures currently do not pose any wider financial system risks, but in time that may change.\u00a0(ABC News:\u00a0John Gunn\u00a0<\/span><\/span><\/span>)<\/cite><\/figcaption><\/figure>\nHe warned that\u00a0anyone buying cryptocurrency should be mindful that even bellwether cryptocurrencies like bitcoin are not yet considered by corporate watchdog ASIC to be a financial product, meaning\u00a0it’s not regulated under the Corporations Act.<\/p>\n\n
“Bitcoin only gets its value from the hope that someone else tomorrow will give you value for it,” Dr Richards said.<\/p>\n
“It’s a thing that people can trade they can buy and sell between each other, but it’s, it’s not a financial product.”<\/p>\n
But he also noted\u00a0that cryptocurrencies, like any other goods or services in the economy, could be subject to Australian Consumer Law protections.<\/p>\n
He said\u00a0the consensus from central banks and others in the international organisations like the International Monetary Fund (IMF) or the Bank of International Settlements (BIS) are that the links between the cryptocurrency universe and the traditional financial sector are weak.<\/p>\n\n\n“You could have significant further falls in in cryptocurrency prices without having major effects on the traditional financial system\u2026 on financial stability, but obviously that could change.<\/p>\n<\/blockquote>\n<\/aside>\n
He said\u00a0there may be a world where digital currencies, distributed ledger technology and\u00a0smart contracts are a major part of financial system, but that “cryptocurrencies might be very much a sideshow”.<\/p>\n\n\n
<\/div>\n<\/div>
Weeks before Terra (UST) crashed, Binance released an ad claiming it was a “safe” investment.\u00a0(Binance<\/span><\/span><\/span>)<\/cite><\/figcaption><\/figure>\nShould marketers\u00a0be able to advertise investments\u00a0as ‘safe’\u00a0<\/h2>\n In early April, several weeks before Terra (UST) collapsed, the cryptocurrency exchange Binance\u00a0released an online advertisement claiming that\u00a0stablecoin was a “safe” investment.<\/p>\n
Binance also promoted it as a “safe and happy” opportunity to earn a very high return\u00a0\u2014 up to 19.63 per cent.<\/p>\n
When asked about the ad, Binance Australia’s CEO, Leigh Travers,\u00a0said: “It’s not the language that I think would use again if that advertisement were to be considered by the marketing team”.<\/p>\n
Like many others in the industry, Mr Travers welcomes increased scrutiny in the crypto industry.<\/p>\n
By improving the standards and better protecting consumers, crypto exchanges can get access to things like banking and financial services, including insurance, he said.<\/p>\n\n\n
<\/div>\n<\/div>
Binance Australia CEO Leigh Tavers says using the word ‘safe’ in marketing certain crypto may not be the wisest move.\u00a0(ABC<\/span><\/span><\/span>)<\/cite><\/figcaption><\/figure>\nHe explained that Binance currently has a pool of more than $1 billion in capital to protect users in the event of exchange malfunction. However, it is made up of bitcoin and other cryptocurrencies, as opposed to actual cash.<\/p>\n
While he noted the industry may have got a bad reputation following last month’s crash, he did not believe there was widespread market manipulation.<\/p>\n\n\n“If there happened to be excessive manipulation on one platform, that’s simply\u2026 smaller exchanges that don’t have the same liquidity don’t have the same consumer protections,” Mr Travers said.<\/p>\n<\/blockquote>\n<\/aside>\n\n
But he said\u00a0the sector also had\u00a0the potential to drive growth.<\/p>\n
“There is true value here. There could be a major industry with… tens of thousands or potentially hundreds of thousands of jobs \u2014 high paying jobs in an exciting industry.<\/p>\n
“So let’s work together and make sure that Australia has an opportunity to compete on a global scale here.”<\/p>\n
Mr Bronsdon said there is a need to protect\u00a0individuals who invest\u00a0in crypto, but that “we want to be careful about how those regulations are put into place”.<\/p>\n
“We don’t want to stifle the innovation that’s happening, the space and some of the incredible things that are being built, but at the same time normal people need to be protected,” he said.<\/p>\n\n\n“When an event like this happens, it is the kind of scale of the Enron crash or Bear Stearns (collapse that led to the global financial crisis).<\/p>\n<\/blockquote>\n<\/aside>\n
“It has affected hundreds of thousands, if not millions, of people worldwide. There are opportunities for protections.”<\/p>\n<\/div>\n
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