After one major Australian bank this week announced it’ll give customers the option of trading crypto currencies, such as Bitcoin, on its existing banking app, you might have expected others to follow.
- The Commonwealth Bank will allow its customers to buy, sell and hold cryptocurrencies
- ANZ, NAB and Westpac say they have no plans to enter the crypto market
- Cryptocurrency is notoriously volatile, and experts are calling for regulations
However, they have told the ABC they will not at this stage.
While there are many stories of cryptocurrency traders making a fortune “overnight”, it is widely accepted that it is very easy to lose money buying and selling cryptocurrencies online.
Warehouse worker Vanna O’Brien, like many younger Australians, did not earn much interest on her bank savings.
However, she has since turned hundreds of dollars into tens of thousands by investing in cryptocurrencies.
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I tipped in $100, hoping that having some skin in the game would help me better understand this brave new financial world.
“I’ve never had more than $800 my whole life,” she said.
“And now I’ve got $50,000 and it’s only been in a few months, so it’s just been, like, crazy.”
Ms O’Brien used her small amount of savings to buy Ethereum — a type of cryptocurrency — through the crypto exchange Coin Spot.
The coins grew in value so she decided to take them out and deposit — or stake them — in a virtual world called Axie Infinity.
It’s essentially an online video game developed by Vietnamese studio Sky Mavis where users can use and store Ethereum-based cryptocurrencies
And she’s earning quite a bit of interest on her coins.
“My coins are like in this bank.”
“So the coin’s called Axie, and they’re paying 130 per cent per annum.”
Industry largely unregulated
As more younger Australians choose cryptocurrency investments to fast-track their savings, Australia’s largest bank now wants a slice of the pie.
The CBA’s head of retail banking, Angus Sullivan, says the bank is now setting up its own pilot platform to buy, sell and hold cryptocurrencies.
“We see an opportunity but we’re not exactly sure how that’s going to work out.”
The Commonwealth Bank says it will warn customers of the financial dangers surrounding cryptocurrencies.(ABC News: Margaret Burin)
“Becoming involved gives us an opportunity to learn more and try different things.”
But here’s the problem.
Even the boss of Australia’s largest digital asset exchange, Caroline Bowler, concedes the industry is largely unregulated, and that there’s zero by the way of sound financial advice available to market participants.
“We know from our investor study earlier this year that is something investors in Australia are looking for, so regulation and education will catch up.”
“This is why the industry has been pushing for regulation.”
For now, though, Mr Sullivan says the bank will simply warn its customers of the financial dangers involved.
“This isn’t a regime where the formalised, let’s call it capital-A, advice exits.”
Investors respond poorly to new rules
A legal framework for cryptocurrency investments appears to be in the works.
The industry made hundreds of submission to a Senate Select Committee chaired by Liberal MP Andrew Bragg looking into how to tighten up the industry.
Report holds crypto keys
Tax discounts and a new licensing regime are among the key recommendations of a Senate inquiry into regulating cryptocurrency and other digital assets in Australia.
In a statement, Treasurer Josh Frydenberg told the ABC, “The government welcomes the final report of the Senate Select Committee on Australia as a Technology and Financial Centre”.
“The Government is carefully considering the Committee’s recommendations and intends to finalise its response by the end of the year,” Mr Frydenberg said.
The banking regulator, APRA, says it is examining the regulatory issues.
And while players in the cryptocurrency industry say they want more regulation, history shows investors respond poorly to new rules.
In November 2019, the price of Bitcoin crashed when China accelerated a crackdown on cryptocurrency businesses.
However, Ms Bowler says regulation will rid the industry of the more “questionable” investments in the crypto market.
“Because here’s the thing: We want our investors to do well,” she said.
“And there’s enough question mark advice that’s being given out in the market, so we need that to abate. We need that to go away and we need regulation to help us do that.”
What makes a digital currency worth something?
Regulation aside, what exactly is the asset behind or backing a cryptocurrency investment?
Behind the bitcoin frenzy
Bitcoin and cryptocurrency prices have surged to dizzying heights since their creation amid the global financial crisis. We explain what’s driving this, along with the pros and cons.
Equity Economics lead economist Angela Jackson says cryptocurrencies can have value if someone else is going to accept it.
“But there is no guarantee that is going to occur, and there really is no one backing it up, if you like.”
And, if Ms O’Brien’s attitude to cryptocurrency investing is anything to go by, the big banks are going to find cracking the market quite a challenge.
“The whole reason why we’re doing crypto is decentralisation,” Ms O’Brien said.
“We don’t want to be part of the banks anymore. We don’t want them having all the power.”
That may explain why the other big four banks are treading carefully in this space.
The ANZ, NAB and Westpac all told the ABC they had no plans to follow the Commonwealth Bank’s lead.
Editor’s note (05/11/2021: This story incorrectly stated that Bitcoin sank to an all-time low in November 2019. The cryptocurrency was lower in 2018 and at an all-time low when it first started trading in 2010.