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This week, in a significant development, the Australian Government unveiled a proposal paper outlining its recommendations to enhance the regulation of cryptocurrency exchanges.

This initiative aims to strengthen oversight and ensure a safer and more secure environment for digital asset transactions.

It comes as the Australian Financial Review’s 2023 Cryptocurrency Summit took place this week in Sydney.

Regulatory discussions at the Summit

Apollo Crypto Chief Investment Officer Henrik Andersson sits second from the right. Source: Apollo Crypto

The primary proposal suggests that cryptocurrency exchanges and digital asset platforms should be brought under Australia’s existing financial services laws, which would require platform operators to obtain an Australian Financial Services License (AFSL).

During the event, Joe Longo, the Chair of the Australian Securities and Investment Commission (ASIC), emphasised the need for accountability in the crypto industry, stressing that it should meet the same high standards as traditional financial services.

“…distrust of the standardised currency has led many people to look at alternative forms of payment, deliberately outside reliance on state standards. But without a standardised value, these alternatives are themselves volatile,” he said.

“Ultimately, the challenge for regulation is to resolve the tension arising from not discouraging financial innovation, while also seeking to provide clear rules and maintaining market integrity.”

Mr Longo also highlighted the volatility of cryptocurrencies.

“The price you pay in crypto for a coffee, for example, will change every hour. Instead of a decentralised peer-to-peer currency system, today lots of centralised businesses facilitate consumers ‘investing’ in crypto-assets, in the hope their crypto will be worth more in the future.”

Mr Longo said.

Fund management company Apollo Crypto’s Chief Investment Officer, Henrik Andersson, expressed strong support for the Australian government’s decision to mandate AFSLs for all crypto exchanges in Australia. He also delivered a speech on “The Future of Finance” at the summit.

Apollo Chief Investment Officer Henrik Andersson speaking on The Future of Finance. Source: Apollo Crypto

Cryptocurrency developments in 2023

Forexsuggest research has revealed that Bitcoin Cash is the top-performing asset class of 2023. The research delved into the performance of leading companies, trending cryptocurrencies, and indexes on a global scale.

From Bitcoin to Exchange Traded Funds (ETFs) and non-fungible tokens (NFTs), the digital landscape is increasingly populated with decentralised virtual assets that have gained momentum throughout the year.

Notably, Grayscale’s recent case drew attention, highlighting the growing popularity of ETFs.

Henrik Andersson of Apollo Crypto discussed the advantages of ETFs with The Market Herald, stating, “ETFs have been a popular investment vehicle for decades, offering exposure to single asset classes or baskets of assets.

“For many decades, ETFs have been a very popular investment vehicle that provides exposure to a single asset class or a basket of assets…ETFs are tradeable in their brokerage accounts and do not require an investor to create an account…It is also likely easier to track gains and losses for tax purposes,” he said.

“Grayscale’s partial victory in its lawsuit against the SEC to convert its Bitcoin investment trust is a positive step towards the approval of a Spot Bitcoin ETF in the United States.”

The Securities and Exchange Commission has previously rejected spot Bitcoin ETF applications, citing concerns about investor protection from market manipulation and fraud.

50/50 split between stocks and crypto

Source: Forexsuggest

The same Forexsuggest research introduced its 2023 Investment Index, illustrating the market’s performance throughout the year.

The chart above reveals that the leading investment options have shown a balanced split, with a 50/50 distribution between stocks and cryptocurrencies.

This underscores the fact that cryptocurrencies continue to provide investors with alternative options that diverge from traditional investments such as stocks or forex.

Among the top 25 investment options from the research, 11 were crypto-based, 11 were stocks, one was a fiat currency, and two were investment indexes.

Looking ahead

According to Mr Andersson, the cryptocurrency market has been in a bear market phase since the fourth quarter of 2021 when inflation started negatively impacting the value of many crypto assets.

This resulted from liquidity being drained from the market as investors became more risk-averse.

He explained, “The crypto market is historically known for following a four-year cycle.”

“It reached its peak around November 2021. Several factors, such as global interest rate tightening, the war in Ukraine, the issues with the LUNA/Terra ecosystem, the problems with FTX, the bankruptcy of several centralized crypto platforms in 2022, and the subsequent regulatory crackdown in 2023, have contributed to the longest bear market in its history.”

In light of these challenges, Mr Andersson encouraged investors to adopt a long-term investment horizon of two to three years and allocate 1-5 per cent of their liquid net worth to this asset class.

Returning to the proposal paper released by the Albanese government this week, participants have 43 days remaining to provide their input.

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