Cryptocurrencies like Bitcoin, Ethereum, Litecoin, and Ripple have emerged over the past decade, becoming some of the most popular alternative investment options available today. Despite recent market volatility, Australia’s digital currency market has experienced exponential growth over the last 12 months, showing potential to disrupt the traditional financial system. But what is the current state of cryptocurrency in Australia, and how do new regulatory measures affect the investment landscape?
Understanding Cryptocurrencies
Often referred to as digital or virtual currencies, cryptocurrencies do not exist in physical forms like coins or banknotes. Instead, they function as digital tokens created through encrypted data structures known as blockchains.
This technology relies on a decentralized database shared among all users. There is no central server, and no single entity owns the data—yet every participant in the network can access the entire blockchain.
Users can earn or "mine" digital currency units by solving complex cryptographic puzzles and verifying transactions. This process demands significant computational power. Once a "block" is successfully added to the blockchain, it can be used for electronic peer-to-peer payments. The blockchain records ownership of each unit and maintains a full history of all transactions.
Beyond payment systems, cryptocurrencies can also execute contracts and run programs. With low barriers to entry, hundreds or even thousands of digital currencies can circulate at any time. These can be bought or sold on traditional trading platforms. Some, like Bitcoin, are even accessible through specialized ATMs that allow users to exchange cash for crypto or vice versa.
The Australian Crypto Market and Regulatory Landscape
Digital currency exchanges sit at the heart of this rapidly evolving industry and serve as key indicators of market health.
Australia is home to 17 cryptocurrency exchanges, including ACX, Bitcoin Australia, Bit Trade, and BTC Markets—and this number continues to grow. These platforms facilitate the buying, storing, and trading of digital assets. According to available data, trading volume through Australian digital currency exchanges reached AUD 5.9 billion in 2017.
Nicholas Giurietto, CEO and Managing Director of the Australian Digital Commerce Association (ADCA), noted: "With traditional assets delivering very low returns, people are looking for other opportunities. There is a growing recognition of the value of this technology and a desire to participate."
However, the industry's rapid expansion initially outpaced regulatory frameworks. In response, Australian authorities introduced specific cryptocurrency laws in the first half of 2018, marking the beginning of a new era for digital currencies.
A major step toward mainstream financial integration came in April 2018, when new legislation required all digital currency exchanges to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC). This meant that exchanges (DCEs) would need to comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
Registered DCEs must now meet AML/CTF compliance and reporting obligations. This includes collecting and storing customer identification and transaction data, monitoring for suspicious activities, reporting transactions exceeding AUD 10,000, and establishing formal AML/CTF compliance programs.
The initial implementation phase posed challenges for smaller exchanges due to the costs and technical expertise required. This may lead to further market consolidation among larger players.
Rupert Hackett, CEO of Bitcoin.com.au, commented: "Before the AUSTRAC regulations, operating a Bitcoin business was akin to running an unregulated bank in some people’s eyes. Now we can offer services with a level of regulatory standardization, which is very positive and builds greater trust within the ecosystem."
These regulatory measures are widely seen as a form of protection for the emerging industry. Australia is considered a global leader in standardizing and legitimizing the digital currency sector.
Of course, as with any regulated industry, concerns about compliance costs and administrative burdens exist. Richard Bunting, Director of Strategic Intelligence and Policy at AUSTRAC, stated: "The digital currency industry actually encourages government regulation as it grants legitimacy. They see regulation as a way to boost consumer confidence. We’ve found the sector to be very open—they view this as a two-way street."
What Regulation Means for Banks and Investors
Traditional banks have historically been reluctant to engage openly with cryptocurrency companies, partly due to concerns about their client base, operational quality, and industry reputation. However, the new Australian regulations have fundamentally altered the relationship between banks and exchanges.
Aside from financial and banking licenses, AML/CTF compliance has always been a basic requirement for banks. Now that exchanges operate under similar AML/CTF standards, banks are more open to collaboration.
Banks may also identify new opportunities within the cryptocurrency space. As the market grows, so does the potential for innovation and expansion.
Aub Chapman, former banking executive and co-chair of the Association of Anti-Money Laundering Specialists, noted: "Increasing cooperation and integration between the digital currency industry and mainstream financial services will benefit all parties."
Some analysts had predicted that stricter regulations would drive investors toward less regulated offshore markets. Instead, these measures are increasingly viewed as protective. Rules regarding the handling of client assets and capital management are essential for safeguarding the entire ecosystem.
Statistics show that registered users on Australian digital currency exchanges increased from 80,067 in 2016 to 312,633 in 2017.
The majority of investors and traders are between 18 and 39 years old. Retail and institutional participation is nearly evenly split.
As more individual users enter the market, the industry must take on an educational role. Exchanges need to help users understand how to manage and protect their digital assets—including how and where to safely store cryptocurrencies.
The AUSTRAC regulations are seen as a positive first step. Many industry experts anticipate further oversight by the Australian Securities and Investments Commission (ASIC) in the near future.
Paul Derham, partner at Holley Nethercote—a law firm specializing in digital currency and financial technology—commented: "The government should legislate to classify cryptocurrencies as financial products and include them within the existing financial services licensing framework. This would compel many exchanges to obtain an Australian market license, similar to the ASX. The government would then need to create a crypto-exchange mechanism equivalent to existing market licenses, integrating cryptocurrencies into the world of capital regulation."
Embracing Challenges and Protecting Potential
As digital currencies continue to evolve in Australia and worldwide, regulators, consumers, and businesses must adapt. Although it’s impossible to predict all future developments, several forward-looking considerations deserve attention:
- Enhanced investor protections: Beyond AML/CTF enforcement, regulatory bodies should strengthen consumer protections against fraud and system failures, such as service provider defaults or cybersecurity breaches.
- Improved investor education: Given the size and growth rate of Australia’s digital currency trading volume, industry and government should collaborate to help investors understand how to use and invest in cryptocurrencies responsibly.
- Stronger ties with banks: Bridges between digital currency exchanges and Australian banks are being built. Through cooperation, DCEs and banks can implement stronger oversight and governance procedures. Transparency within the industry will also benefit from closer relationships between mainstream finance and the crypto sector.
- Increased trust in local exchanges: Some investors prefer trading through offshore platforms, perceiving lower risks abroad. Industry and government should ensure that local markets remain strong, secure, and efficient enough to compete with international exchanges.
For those interested in exploring this dynamic sector further, you can discover updated market insights and stay informed about regulatory changes.
Frequently Asked Questions
What is AUSTRAC’s role in cryptocurrency regulation?
AUSTRAC enforces anti-money laundering and counter-terrorism financing laws. Digital currency exchanges must register with AUSTRAC and comply with reporting and monitoring obligations to operate legally in Australia.
How do cryptocurrency regulations protect investors?
Regulations ensure exchanges implement security protocols, transparent operations, and accountability measures. This reduces fraud risks and enhances overall market integrity.
Can Australians still trade cryptocurrencies freely under the new laws?
Yes, Australians can continue to trade cryptocurrencies. Regulations aim to create a safer environment without restricting legitimate trading activities.
Will more regulations be introduced in the future?
It is likely. Industry experts anticipate further oversight, potentially by ASIC, especially if cryptocurrencies are classified as financial products.
How can investors stay safe when trading cryptocurrencies?
Investors should use reputable exchanges, enable two-factor authentication, store assets in secure wallets, and stay informed about market and regulatory developments.
Are cryptocurrencies considered legal tender in Australia?
No, cryptocurrencies are not legal tender. They are treated as property or assets for tax purposes and are subject to capital gains tax regulations.