The Australian Government has unveiled a new classification system for cryptocurrency assets, a move that will set the tone for future regulation in the country. The new framework is a significant step for Australia to be positioned as a world leader in crypto asset regulation.
The new regime will also likely extend to crypto asset service providers (CASSPrs), potentially sitting alongside the existing AFS licensing regime. This could introduce overlap or inconsistency and be unsustainable over time.
Cryptocurrency is a form of digital currency that does not have a physical link to money. These currencies are often created by mining, which is the process of using computer power to solve complex cryptographic algorithms.
The Australian government has unveiled a new classification system for cryptocurrency assets, which it says will guide its regulatory approach. This system, called "token mapping," involves uncovering the characteristics of all digital asset tokens in Australia and charting them based on their asset type, underlying code and other defining technological and functional features.
According to the document, cryptocurrencies can be classified into four categories: asset-based, intermediated crypto assets, financial and non-financial. This classification scheme applies to both fiat and cryptocurrency assets, and includes the most common types of cryptocurrencies.
As part of its research, the Treasury has consulted with industry groups and regulators across the world. It has also enlisted the help of law firms to provide advice on how a crypto classification system should be structured.
This paper is a key component of a larger plan to regulate the crypto sector in 2023, and it sets out how the government plans to approach the issue of crypto regulation going forward. The new framework will include licensing and custody settings for crypto service providers, which was one of the issues raised by the recent collapse of Australian exchange FTX.
In addition, the government also has said it plans to establish a central bank digital currency (CBDC) pilot program in mid-2023. The CBDC pilot will seek to explore the potential for the use of digital currencies as a medium of exchange and as a central bank reserve currency.
The paper suggests that the central bank could consider a number of factors in deciding whether to launch a CBDC, including economic, legal and technological considerations. It also highlights the potential for the use of CBDCs as a monetary base, and in other uses such as cross-border trade and settlement.
As part of its research, the Australian Treasury has consulted with industry groups and regulators throughout the world. It has also enlisted law firms to provide advice on how a cyber-based classification system should be structured.
In an effort to provide clarity on the regulatory landscape, the Australian Treasury has rolled out a new classification system. This has been referred to as token mapping and it is one of the many steps the government is taking to regulate the crypto space.
The Treasury has outlined the main types of digital assets and products related to the crypto industry: hybrids, securities tokens, utility tokens, and security and utility crypto asset services. They have also defined the characteristics of each of these tokens.
Hybrids: These assets have a mix of characteristics from multiple digital asset categories and may offer both utility and investment returns to their holders. They can be used for a variety of purposes such as trading, mining, gambling and storage.
Token systems and functions: These products have a crypto token as their main component, but also include lending and borrowing, fiat on/off ramping, cryptocurrency trading, funds management, mining/staking-as-a-service, and custody.
They can be offered to individuals and institutions by crypto service providers such as exchanges, brokers, and custodians. These entities are required to register with the Australian Securities and Investments Commission (ASIC) and comply with government anti-money laundering and counter-terrorist financing (AML/CTF) obligations.
Crypto asset schemes and ICOs: Responsible entities (REs) and managed investment schemes are regulated under Chapter 5C of the Corporations Act and must comply with their legal obligations as REs, including to act in the best interests of their investors. They must also consider the key matters of custody, risk management and disclosure when investing their investors' money into crypto-assets.
Listed investment companies: LICs are public companies incorporated under the Corporations Act and must comply with their law, which includes Chapter 2D (directors' duties), Chapter 2M (financial reporting) and section 674 (continuous disclosure). They must also ensure that they follow good practice for custody, risk management and disclosure of their investments.
Investing your money into crypto-assets is risky and you should be aware of all the risks involved before making any investment decisions. It is important to remember that you can obtain further information on crypto-assets and ICOs through ASIC's Money Smart website, which provides advice on how to invest in crypto-assets safely.
The Australian government recently released a new classification system for crypto assets. The system, called datonomy, is designed to help investors, service providers and developers monitor market trends and analyze portfolio risk and returns.
According to the Treasury, the system aims to “recognize different kinds of digital assets within a functional perimeter,” which is designed to be technology-neutral and flexible enough to support various industry uses. The framework is based on three key concepts: tokens, token systems and functions.
Specifically, the Treasury says that there are four major types of crypto assets: intermediated crypto assets, cryptocurrencies, crypto asset services and crypto asset products.
This classification system is a vital step in regulating the crypto ecosystem as it will allow the government to distinguish which tokens are regulated under financial services laws and which are not. The paper will also assess the suitability of different underlying technologies and identify the key risks associated with each.
In addition to this new system, Australia is preparing to impose additional regulations on crypto assets and has already launched a public consultation on the issue. The Treasury plans to release a framework for custody and licensing of digital assets in mid-2023.
The new system is a part of the government’s plan to modernize Australia’s financial sector and comes in response to the collapse of FTX, a cryptocurrency exchange that was engulfed in a $600 million bankruptcy in November 2018. In an interview with the Sydney Morning Herald on January 23, Financial Services Minister Stephen Jones said that he plans to regulate crypto-assets that act like financial products but remain unregulated.
He also noted that the government has prioritized the regulatory review of ICOs and other new types of crypto-assets. He stated that the FTX collapse has “put beyond doubt” the need for regulation.
The government also outlined its strategy to introduce an Australian central bank digital currency (CBDC) in 2023, which will provide an alternative form of payment for residents of the country. It will also explore how to develop the blockchain technology that would power the CBDC and create a more secure and transparent ecosystem for the crypto community.
The Australian government has unveiled a new classification system for cryptocurrency assets. This is part of Australia's plan to regulate the rapidly growing crypto industry. The new framework is designed to provide investors, service providers, developers, and researchers a way to monitor market trends, analyze portfolio risk and returns, and help build new products.
The new classification system includes four major product categories: currencies, security tokens, utility tokens, and hybrids. These categories are intended to help users better understand how cryptocurrencies fit into the existing financial ecosystem and to identify how they might be regulated in Australia.
Currencies: Digital currencies, such as Bitcoin and Ethereum, operate on a blockchain network. They are designed to be secure, transparent, and resistant to censorship and interference. Their value is supported by supply and demand, and no single party controls them.
Despite being a decentralized digital asset, cryptocurrencies are accounted for under Generally Accepted Accounting Principles (GAAP) in the same manner as other types of assets and securities. The only difference is that they do not have a "live" or "impaired" cost basis.
However, because they have indefinite lives, cryptocurrencies must be tested for impairment on an annual or more frequent basis if events indicate that they are likely to be impaired in the future. This requires entities to evaluate whether a decline below their original cost is a significant event that will make the asset more likely to be impaired than it was at the time of purchase.
If the asset is an interest in a managed investment scheme or security, it must be treated as a financial product. It must comply with the capital raising provisions of the Corporations Act and AFS licensing requirements, as well as other regulatory requirements.
Responsible entities and managed investment schemes are regulated under Chapter 5C of the Corporations Act, and they must comply with their legal obligations to their investors. These include ensuring that they conduct their business in the best interests of their investors, and complying with the regulatory framework for securities and structured products.
Crypto-assets that are not financial products, such as ICOs, must comply with the same prohibitions against misleading and deceptive conduct as other financial products under the Australian Consumer Law. It is also important that entities who offer a crypto-asset or ICO consider how it is marketed.
The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
Hello, an interesting read, thanks.
Can you post some references to the content, please?
An exercise - under which type fall HIVE and HBD and why?
@tipu curate
Thank you for the comment. 👍
Sure thing:
https://treasury.gov.au/consultation/c2023-341659 https://cointelegraph.com/news/australia-introduces-crypto-assets-classification
For HIVE I see it under "crypto asset services". We got a lot: Lending, tokens, token trading, staking, delegation, gambling, memes.
To name a few.
HBD would likely fall under the category of "Intermediated crypto assets". As HBD is pegged to 1 USD worth of Hive, it could be considered a form of intermediated crypto asset.
However, it's important to note that the article is just a proposal for a taxonomy and may not reflect the final classification by the Australian regulators.
Thank you for the answer. I need to check how this proposal relates to MICA document.
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