Furthermore, the bank’s representative has also commented on the potential regulatory response for Initial Coin Offerings (ICOs) and the use of digital currencies in illegal transactions. So far, the regulatory response to cryptocurrencies has been more focused on ICOs and derivative investment products such as exchange traded funds (ETFs), rather than payment transactions.
The rise in price of major cryptocurrencies such as Bitcoin and Ether were largely due to speculative demand. Furthermore, speculative activity is even more pronounced in “the use of digital currencies as the means of participation in Initial Coin Offerings”.
From a payments perspective, the decentralised technology behind cryptocurrencies meant regulation of those systems is “unlikely to be effective”, the RBA representative added. Authorities are focused on the gateways for money to go into crypto and then be converted back to traditional fiat currency.
Typically, fiat currencies are converted into cryptocurrencies such as Bitcoin and Ethereum, and funds are transferred from there into ICOs. Thus, accepting fiat money directly for a new ICO carries with it potential legal risks. RBA’s Head of Payments concluded that cryptocurrencies should remain in the sights on tax authorities, due to the prevalence of their use in illegal transactions.
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