Bitcoin is starting to grow up.
The machinery of Canberra is bravely attempting to mark a boundary around digital currencies such as bitcoin as well the technology underpinning it as crypto comes out of the darker corners of the virtual world.
With crypto exchanges now turning over hundreds of millions of dollars and sponsoring AFL and NRL teams, and Hollywood star Matt Damon fronts primetime TV ad spots, more Australians are about to get on board.But with one bitcoin fetching $55,000, what exactly are they buying into?
Read Next That’s what Treasury is trying to answer as it reviews cryptocurrency exchanges with an eye to introduce licences across the fast-growing sector.
Crypto has the feel of the early days of online gaming, when there was an arms race on advertising and very little regulation to provide a foil for the risks.
Cryptocurrency Bitcoin, Blockchain, Blueprint, hacking.The Treasury paper will break new ground given it will attempt to define and classify the universe of crypto assets, as well as seek feedback around any assets that are considered dangerous and should be straight out banned.
READ MORE: Hamish Douglass quits Magellan board | Magellan’s Douglass tangled in Squid Game | Six weeks for Magellan to steady ship | This is one of several reviews going on behind the scenes for crypto, including the tax treatment of digital assets by the powerful Board of Taxation.
The tax review, with terms released on Monday, will consider issues around capital gains tax for crypto trading and whether to give the digital currency similar tax treatment to equities.Both the tax review and Treasury paper will report by the end of the year.
Combined, this could be a make or break moment for crypto, and also a possible future revenue stream for governments in making crypto a mainstream product.
Already the technology behind crypto is being used in serious practical applications.
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Rio Tinto is using blockchain to facilitate trade of iron ore for offshore buyers, and several Australian banks are using blockchain technology in property leases.
Still, Canberra knows its own limitations, pointing out that the intangible and global nature of crypto makes regulation particularly challenging, especially as most of the market is based outside of Australia.
At least it is attempting to develop a playing field.
Treasury notes that domestic exchanges may benefit “from a more reliable and trustworthy crypto market here in Australia” through a licensing system.This see in local exchanges that provide custody and storage of crypto, as well as buying and selling come under a regulatory umbrella.
Senator Andrew Bragg has been leading the push to bring crypto into the digital economy.Picture: NCA NewsWire/Gary Ramage It will include a demand that exchanges have adequate technology and financial resources to provide services and manage risks; including the holding of crypto assets on behalf of investors and dispute resolution when trades go bad.
Critically, the exchanges would fall under the anti-money-laundering regime policed by Austrac as part of their licensing arrangements.
The bigger local exchanges have in the whole been supportive of such a move and a licensing regime stands to deliver even faster growth as investors gain confidence around crypto.
Among demands, Treasury wants any licensing regime to provide a framework for minimum standards of conduct, security, as well as to apply a “fit and proper” test to key management to eliminate criminals.
Treasury is still treading softly over regulation.
It’s taken the opening position that the potential risks in crypto are not as systemic as other financial products, including bank deposits, bonds or equities.
And just because something is digitised doesn’t mean it needs its own set of regulations or it doesn’t suddenly become a unique financial product – like Rio selling iron ore.It is possible this approach could also apply to NFTs, the non-fungible tokens that are sweeping the art world.
Liberal senator Andrew Bragg has confronted crypto head on and argued that there are genuine opportunities for Australia if digital plays by the rules.
Bragg, in his role as chairman of the Financial Technology committee, delivered a landmark report into what was needed to grow the sector.This gave momentum for Josh Frydenberg to get the nation’s financial bureaucracy to look at crypto seriously and start thinking about its role in the digital economy.
As Bragg noted on Monday in a speech, crypto still needs to be handled with care.In the near term, crypto is likely to remain a way for some actors to get around international sanctions.The removal of Russia from the SWIFT banking system has given fresh urgency to this.
Bragg said that, leading up to the Russian invasion of Ukraine, large day crypto currency volume was worth $US16bn.When Western countries cut Russia from SWIFT, in the days following it quadrupled to $US64bn.
It is likely that some of this money was washing through Australia and financial crimes regulator Austrac has very limited powers as well as ability to track crypto.
“We can’t have a situation where a product which is used by millions of people can become a backdoor for sanctions,” Bragg says.
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‘Magellan’s clear air’
Since cracks opened at the very top of Magellan Financial Group in early December, its funds have shrunk by a whopping $47bn, including outflows while its market capitalisation has halved.
It has been a whirlwind for its near 140 employees and thousands of clients riding the twists and turns at the top.
But the decision for Hamish Douglass to last month take leave of absence to focus on his health has given new chairman Hamish McLennan the clear sky needed to slowly pull Magellan out of its nosedive.
Douglass’s exit from the board on Monday should be seen as another small but significant step in the right direction.It continues the clean-up under McLennan of the messy governance structure that previously saw Douglass the co-founder, biggest shareholder, and executive chairman also making day-to-day investment calls.Under that scenario, who really had the authority to tell Douglass he had made a dud investment decision?
The Douglass exit allows McLennan to rebuild the boardroom as the search continues for another independent director.
With three months to go until the end of the financial year, the massive fall in Magellan’s funds under management will squeeze revenue, with its $20bn of infrastructure investments under Gerald Stack the only prospects to secure performance fees in the June half.
Magellan’s revenue drop will result in its management expense ratio pushing past 20 per cent, well above the range for a manager of its scale.
Hamish McLennan, chairman of Magellan Financial Group.
Picture: Britta Campion/The Australian Work is needed on rebuilding confidence in performance around the funds, which are now being managed by former UBS banker Chris Mackay.This is not going to be easy as rising interest rates around the world are providing additional headwinds.
Magellan’s flagship fund is built around holdings in the companies behind Google and Facebook, as well as Netflix and Starbucks, and has underperformed its benchmark on a three and six-month measure.One-year returns had underperformed its benchmark the MSCI World Index by a hefty 8.25 per cent, suggesting further funds losses are likely.
Magellan’s light capital model has given it a significant advantage to absorb shocks.It has $1bn in cash, although this will be trimmed as it undertakes a share buyback of up to $200m.
It will need all the cover it can get.The loss of the recent multi-billion dollar St James Place investment mandate is likely to come at a $60m hit to annual profits.It is likely to have future capital commitments for its investment banking start-up Barrenjoey.Magellan has valued its 40 per cent stake in Barrenjoey at $118.1m and has extended an $50m unsecured finance facility to the investment bank.
Eric Johnston Associate Editor Follow Eric Sydney Eric Johnston is an associate editor of The Australian.He joined the masthead in 2014 as business editor, overseeing overseeing award-winning business news coverage and investigations.
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