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Deconstructing Digital Currency and Its Risks: Why ASIC Must Rise to the Regulatory Challenge

Published online by Cambridge University Press:  01 January 2025

Paul Latimer  and
Michael Duffy
Paul Latimer*
Affiliation:
Swinburne Law School
Michael Duffy*
Affiliation:
Corporate Law, Organisation and Litigation Research Group (CLOL); Department of Business Law and Taxation, Monash University
*
The author can be contacted at platimer@swin.edu.au.
The author can be contacted at michael.duffy@monash.edu.
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Abstract

Digital currency is a ‘disrupter’ of financial services and currency markets, and as such presents new regulatory challenges. International regulatory responses to digital currency range from being largely ignored in some jurisdictions to being banned in others, with most jurisdictions charting a middle course of ‘wait and see’ while attempting to deal with pressing issues (such as taxation liability and potential money laundering and terrorism financing issues). This article explains digital currency, its benefits, its problems, its risks and the regulatory response so far. It analyses the extent to which the Australian Securities and Investments Commission (ASIC, the national securities regulator) may or may not have regulatory power and jurisdiction under existing Australian law, and the role of other relevant regulators and institutions. It concludes that digital currency may well be a ‘financial product’ under Corporations Act 2001 (Cth) s 763A (though many suppliers/issuers of that product will be website operators located outside Australia). If it is a financial product, ASIC would also have jurisdiction over issuers and markets that trade in that product. This conclusion could easily be fortified by legislative confirmation; however, it is suggested that ASIC should in all events test its powers to determine whether any legislative change is needed. Regulation by ASIC would add to recent moves to deal with digital currency by the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Australian Taxation Office (ATO). In all cases, this article argues that the time has come for Commonwealth regulation of digital currencies by ASIC as the relevant regulator. This would then trigger the obligations set out in the Corporations Act and the ASIC Act, including Australian Financial Services Licensing, Australian Market Licensing, standards of efficiency, honesty and fairness, disclosure provisions, possible market offences and corporate regulation generally. The suggested jurisdiction of ASIC would build on its existing role as well as the roles of the Australian Competition and Consumer Commission, the ATO and AUSTRAC.

Type
Articles
Information
Federal Law Review , Volume 47 , Issue 1 , March 2019 , pp. 121 - 150
Copyright
Copyright © 2019 The Author(s)

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Footnotes

The authors are grateful to Dr Andrew Serpell and to the anonymous referees for their useful comments.

References

Notes

1. Australian Securities and Investments Commission, Cryptocurrencies (13 June 2018) at ASIC’s MoneySmart <https://www.moneysmart.gov.au/investing/investment-warnings/virtual-currencies>. Australia’s first statutory definitions of digital currency are considered in the ‘The current position on ASIC’s power over digital currency’ section below.

2. This article uses ‘digital currency’ as the generic word for digital currency, cryptocurrency, decentralised currency, digital token, digital wallet, e-currency, e-money and virtual currency, often popularly called Bitcoin after the early player Bitcoin (launched in 2009).

3. See, eg, Edward Southall and Mark Taylor, ‘Bitcoins’ (2013) 19 Computer and Telecommunications Law Review 177.

4. Ross P Buckley and Ignacio Mas, ‘The Coming of Age of Digital Payments as a Field of Expertise’ [2016] Journal of Law, Technology and Policy 71, 79.

5. Michael Glennon, ‘Why Glennon Capital’s Michael Glennon is “Bored of Bitcoin Already”’, Australian Financial Review (online), 15 January 2017 <https://www.afr.com/markets/michael-glennon-im-bored-of-bitcoin-already-20180111-h0h714>; Martin Arnold, ‘Bitcoin a “Bubble, Ponzi Scheme and Environmental Disaster”’, Australian Financial Review (online), 7 February 2018 <https://www.afr.com/markets/bitcoin-a-bubble-ponzi-scheme-and-environmental-disaster-20180207-h0v94p>.

6. See, eg, Michael Crosby et al, ‘Blockchain Technology: Beyond Bitcoin’ (2016) 2 Applied Innovation Review 6; see also, Alan Kohler, ‘Cryptocurrencies Created by Anarchists to Bring Monetary System Down’, The Australian (online), 8 July 2017 <https://www.theaustralian.com.au/business/opinion/alan-kohler/cryptocurrencies-created-by-anarchists-to-bring-monetary-system-down/news-story/f42a6d7dba9c11726e8f2bd7381bb1e1>.

7. Tulips, newly introduced in Holland from the Middle East, were the subject of a run over 3 months, where the price of a tulip rose to more than $35k as merchants competed on price.

8. Jacob Donnelly, Here’s What the Future of Bitcoin Looks Like, and It’s Bright (14 February 2016) Venture Beat <https://venturebeat.com/2016/02/14/heres-what-the-future-of-bitcoin-looks-like-and-its-bright>.

9. Erik Bagshaw, ‘Bipartisan Push for the Reserve Bank to Back Australian Bitcoin’, Sydney Morning Herald (Sydney), 8 August 2017, 4.

10. It has been suggested that the strength of digital currency is in fact its libertarian, distributed construct, controlled by no one and with limited issuance, and that state-issued digital currencies would have none of these qualities. See, eg, James Eyers and Jessica Sier, ‘The Future of Money’, Australian Financial Review, 28–29 October 2017, 15, 20.

11. See, eg, the Bitcoin Foundation, which seeks ‘to speak with governments, regulators, financial institutions, technologists, the media and everyone else all over the world to protect Bitcoin. [so that users] can safely and legally: Convert fiat currency into Bitcoin and vice versa[;] Use Bitcoin as a medium of exchange [and;] Use Bitcoin as a store of value’. The Bitcoin Foundation, Membership (8 November 2016) The Bitcoin Foundation <https://bitcoinfoundation.org/membership/>.

12. See, The Bitcoin Foundation, The Bitcoin Foundation Manifesto (8 November 2016) The Bitcoin Foundation <https://bitcoinfoundation.org/wp-content/uploads/2017/03/Bitcoin_Foundation_Manifesto.pdf>. See also generally the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, established 14 December 2017, to provide an interim report to the Australian Government in September 2018 and a final report by 1 February 2019.

13. The Bitcoin Foundation, above n 11.

14. The Bitcoin Foundation (29 August 2018) <https://bitcoinfoundation.org/>.

15. While the second proposition in the sentence may be true, the sentence appears to assume that monetary policy causes inflation whereas most central banks actually use monetary policy to fight inflation as a primary goal.

16. See, eg, Brett Scott, ‘How Can Cryptocurrency and Blockchain Technology Play a Role in Building Social and Solidarity Finance?’ (Working Paper No 2016-1, United Nations Research Institute for Social Development, February 2016).

17. ‘Mobile Phones are Transforming Africa’, The Economist (online), 10 December 2016 <https://www.economist.com/news/middle-east-and-africa/21711511-mobile-phones-are-transforming-africa-where-they-can-get-signal-mobile-phones>.

18. See generally, John C Coffee, Gatekeepers (Oxford University Press, 2006).

19. That is, they have some level of accountability in such transactions which, in the case of banks, is backed by their balance sheets if they are sued for any unlawful conduct.

20. Senate Economics References Committee, Parliament of Australia, Digital Currency — Game Changer or Bit Player (2015) 15–16 (‘Dastyari Committee Report’).

21. Also called market-fundamentalist libertarians: See, eg, David Golumbia, The Politics of Bitcoin — Software as Right-Wing Extremism (University of Minnesota Press, 2016); see also, Chris Zappone, ‘Techno-Libertarians: A Weak Link in Democracy’s Defence Against Authoritarians’, The Age (online), 11 August 2017 <http://www.theage.com.au/world/technolibertarians-a-weak-link-in-democracys-defence-against-authoritarians-20170804-gxp8er.html>. Though some research has questioned the association between libertarian ideology and Bitcoin use — see, Aaron Yelowitz and Matthew Wilson, ‘Characteristics of Bitcoin Users: An Analysis of Google Search Data’ (2015) 22 Applied Economics Letters 1030.

22. Another possible use for a blockchain system would be to register the owners of ‘orphan works’ — works which are ostensibly protected by copyright where the copyright holder cannot be found — as recommended by Jake Goldenfein and Dan Hunter, ‘Blockchains, Orphan Works and the Public Domain’ (2017) 41 Columbia Journal of Law and the Arts 1.

23. Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System <https://bitcoin.org/bitcoin.pdf>.

24. Ibid 2.

25. Controlled Supply (13 June 2018) Bitcoin Wiki <https://en.bitcoin.it/wiki/Controlled_supply>.

26. Mining (25 June 2018) Bitcoin Wiki <https://en.bitcoin.it/wiki/Mining>.

27. Ibid.

28. Nakamoto, above n 23, 3.

29. Bitcoin Wiki, above n 25.

30. Stephanie Bell, ‘The Role of the State and the Hierarchy of Money’ (2001) 25 Cambridge Journal of Economics 149, 150.

31. Duncan Foley, ‘Money in Economic Activity’ in John Eatwell, Murray Milgate and Peter Newman (eds), The New Palgrave: Money (Norton, 1st ed, 1989).

32. Bell, above n 30, 150.

33. See, eg, Jeffrey A Frankel and Kenneth A Froot, ‘Chartists, Fundamentalists and the Demand for Dollars’ in Anthony S Courakis and Mark P Taylor (eds), Private Behaviour and Government Policy in Interdependent Economies (Oxford University Press, 1990) 73.

34. James Whatman Bosanquet, Metallic, Paper, and Credit Currency, and the Means of Regulating their Quantity and Value (London, 1842) 6–7.

35. The German Weimar Republic in the 1930s and more recent hyperinflation in Zimbabwe being noted examples.

36. Kenneth A Froot and Tarun Ramadorai, ‘Currency Returns, Intrinsic Value and Institutional-Investor Flows’ (2005) 60 Journal of Finance 1535.

37. The Australian Consumer Law is schedule 2 of the Competition and Consumer Act 2010 (Cth). The law of misleading or deceptive conduct in Australia has developed doctrines of non-disclosure in the context of a combination of silence and positive averments or of silence in a context giving rise to a misleading representation in the absence of better disclosure: see, Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477; Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Ltd (2001) 117 FCR 23.

38. The People’s Bank of China, Public Notice of the PBC, CAC, MIIT, SAIC, CBRC, CSRC and CIRC on Preventing Risks of Fundraising through Coin Offering (8 September 2017) <http://www.pbc.gov.cn/english/130721/3377816/index.html>.

39. See, eg, Cynthia Kim, ‘South Korea Bans Raising Money Through Initial Coin Offerings’, Reuters (online), 29 September 2017 <https://www.reuters.com/article/us-southkorea-bitcoin/south-korea-bans-all-forms-of-initial-coin-offerings-idUSKCN1C408N>.

40. See, eg, US Securities and Exchange Commission, Investor Bulletin: Initial Coin Offerings (25 July 2017) Investor.gov <https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-initial-coin-offerings>; European Securities and Markets Authority, ESMA Alerts Investors to the High Risks of Initial Coin Offerings (ICOs) (13 November 2017) <https://www.esma.europa.eu/sites/default/files/library/esma50-157-829_ico_statement_investors.pdf>.

41. Andrew Trotman, ‘Bitcoins Banned in Thailand’, The Telegraph (online), 29 July 2013, <https://www.telegraph.co.uk/finance/currency/10210022/Bitcoins-banned-in-Thailand.html>.

42. Kitiphong Thaicharcon, Orathai Sriring and Robert Birsel, ‘Thai Central Bank Bans Banks from Cryptocurrencies’, Reuters (online), 12 February 2018 <https://www.reuters.com/article/thailand-economy-cenbank/thai-central-bank-bans-banks-from-cryptocurrencies-idUSL4N1Q234I>.

43. See, eg, Ontario Securities Commission, Canadian Securities Administrators (CSA) Staff Notice 46-307 (24 August 2017) <http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20170824_digital%20currency-offerings.htm>.

44. Nicholas Plassaras, ‘Regulating Digital Currencies: Bringing Bitcoin within the Reach of the IMF’ (2013) 14 Chicago Journal of International Law 377, 391.

45. Dastyari Committee Report, above n 20.

46. Commonwealth, Productivity Commission, Business Set-up, Transfer and Closure, Report No 75 (2015) 240–7.

47. ‘Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and Associated Rules and Regulations’ (Report, Attorney-General’s Department, April 2016) 45–50.

48. Nakamoto, above n 23.

49. Bitcoin <https://bitcoin.org/en>. This appears to be the site to download the client software to create a Bitcoin account, allowing the buying, selling or storing of existing Bitcoins: Pierre Lemieux, ‘Who is Satoshi Nakamoto?’ (2013) 36(3) Regulation 14, 14.

50. Self-described as a ‘Wiki maintained by the Bitcoin community’: Bitcoin Wiki (14 April 2010) <https://en.bitcoin.it/wiki>.

51. The Bitcoin Foundation, above n 11.

52. See, eg, Singapore Police Force, Consumer Advisory on Investment Schemes Involving Digital Tokens (Including Virtual Currencies) (10 August 2017); Monetary Authority of Singapore <http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/Consumer-Advisory-on-Investment-Schemes-Involving-Digital-Tokens.aspx>.

53. Nakamoto, above n 23, 4.

54. Bitcoin, How Does Bitcoin Work? <https://bitcoin.org/en/how-it-works>.

55. David Easley, Maureen O’Hara and Soumya Basu, From Mining to Markets: The Evolution of Bitcoin Transaction Fees (28 June 2018) SSRN, 2 <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3055380>.

56. Bitcoin Wiki, above n 25.

57. The geometrical reduction of new coins being issued will ‘create a sharp drop in the profitability of mining’: Mitsuru Iwamura, Yukinobu Kitamura and Tsutomu Matsumoto, ‘Is Bitcoin the Only Digital Currency in the Town? Economics of Digital currency and Friedrich A Hayek’ (Discussion Paper Series A No 602, Institute of Economic Research, Hitotsubashi University, 28 February 2014) 10.

58. Jemima Kelly, ‘10 Bitcoin Facts you Might Not Know as the Bubbly Cryptocurrency Gets Volatile’, Australian Financial Review (online), 30 November 2017 <https://www.afr.com/markets/currencies/10-bitcoin-facts-you-might-not-know-as-the-bubbly-cryptocurrency-gets-volatile-20171129-gzvkhl>.

59. Ben Block, Energy Agency Predicts High Prices in Future (15 January 2018) Worldwatch Institute <http://www.worldwatch.org/node/5936>.

60. Nakamoto, above n 23, 4.

61. Justin Connell, Bitcoin Transaction Fees Are Up More Than 1200% in Past Two Years (22 February 2017) Bitcoin.Com <https://news.bitcoin.com/bitcoin-transaction-fees-1200-past-two-years/>.

62. Easley, O’Hara and Basu, above n 55, 4.

63. Ittay Eyal and Emin Gün Sirer, ‘Majority Is Not Enough: Bitcoin Mining Is Vulnerable’ (Paper presented at the International Conference on Financial Cryptography and Data Security, Christ Church, Barbados, 3–7 March 2014).

64. Nakamoto, above n 23, 1, 3.

65. Rod Garratt and Rosa Hayes, Bitcoin: How Likely is a 51 Percent Attack? (24 November 2014) Liberty Street Economics, Federal Reserve Bank of New York <http://libertystreeteconomics.newyorkfed.org/2014/11/bitcoin-how-likely-is-a-51-percent-attack.html>.

66. Jemima Kelly et al, ‘Cryptocurrencies: How Hackers and Fraudsters are Causing Chaos in the World of Digital Financial Transactions’, The Independent (online), 8 October 2017 <https://www.independent.co.uk/news/business/analysis-and-features/cryptocurrencies-hackers-fraudsters-digital-financial-transactions-bitcoin-virtual-currency-failures-a7982396.html>; Kelly, above n 58. A further $6 million in Bitcoin was said to have been stolen by hackers in early December 2017: Samuel Gibbs, ‘Bitcoin: $64 m in Digital Currency Stolen in “Sophisticated” Hack, Exchange Says’, The Guardian (online), 7 December 2017 <https://www.theguardian.com/technology/2017/dec/07/bitcoin-64m-cryptocurrency-stolen-hack-attack-marketplace-nicehash-passwords>.

67. See, eg, James North, Joanna O’Rourke and Kieran Donovan, ‘Regulating the Outlaw — The Bitcoin Bandit’ (2014) 87 Computers & Law 1.

68. Eileen Ormsby, The Darkest Web: Drugs, Death and Destroyed Lives (Allen & Unwin, 2018); see also, Penny Crofts, ‘Monsters and Horror in the Australian Royal Commission into Institutional Responses to Child Sexual Abuse’ [2017] UTSLRS 21; (2017) Law & Literature 1.

69. See, eg, Felix Ralph, ‘Anonymity and the Law: “The Darknet Rises”’ (2013) 32(1) Communications Law Bulletin 14.

70. See generally, Usman W Chohan, Cryptoanarchism and Cryptocurrencies (27 November 2017) SSRN <http://dx.doi.org/10.2139/ssrn.3079241>.

71. R v Collopy; R v Cooley [2017] SASCFC 64.

72. R (Cth) v Mead [2017] NSWDC 1 (tier 1 drug importation; manufacture, possession, dealing in prohibited drug with proceeds in Bitcoin currency); DPP v Gould [2016] VCC 322 (importation of drugs, purchased through Silk Road website, paid for with Bitcoins); Stebbins v Tasmania [2016] TASCCA 6 (drug trafficking with payment through Cryptospend, a Bitcoin agent); DPP v Ragauskas [2016] VCC 1232 (trafficking, importation and possession of drugs paid in Bitcoin); R v D, CM; R v W, AW; R v M, RP [2016] SASC 38 (payment for drugs with Bitcoin); R v Wallis [2016] NSWDC 94 (supply of prohibited drugs purchased online with Bitcoin); DPP v Millar [2015] VCC 1883 (payment for drugs with Bitcoin); R v NE [2015] ACTSC 352 (drug importation, with payment in Bitcoins); Matthews v The Queen; Vu v The Queen; Hashmi v The Queen [2014] VSCA 291 (illicit drugs purchased via Silk Road, described as ‘an internet-based black market’ and paid for with Bitcoin).

73. DPP v To [2017] VCC 475 (attempt to work off debt from speculation in Bitcoin by delivering a parcel containing proceeds of crime).

74. Nash v Chief Executive, Public Safety Business Agency [2016] QCAT 126 (conspiracy to distribute narcotics, moderated a chat forum on Silk Road, paid in Bitcoins).

75. Most countries abandoned the gold standard system early in the 20th century. See generally, Michael D Bordo, The Gold Standard and Related Regimes: Collected Essays (Cambridge University Press, 1999).

76. Under floating exchange rates, central banks — like private banks — may at their discretion furnish foreign state-issued currencies (SICs) in exchange for local SICs but this will be at market rates which will rise and fall according to global demand for the currency. This does not amount to any guarantee of the value of the local currency.

77. See, Bell, above n 30.

78. Ibid 154.

79. Georg F Knapp, The State Theory of Money (H E Batson trans, Routledge & Kegan Paul, 1924) [trans of: Staatliche Theorie des Geldes (first published 1905)].

80. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (first published 1776; Angus and Robertson, 2018 edition).

81. L S, ‘Who is Satoshi Nakamoto? The Economist Explains’, The Economist (online), 2 November 2015 <https://www.economist.com/blogs/economist-explains/2015/11/economist-explains-1>; Ian Steadman, ‘The Mysterious Satoshi Nakamoto: In Search of Bitcoin’s Creator’, New Statesman, 6 May 2016, 17.

82. An associated risk is that the pseudonymous creator, Satoshi Nakamoto is believed to have a holding of some one million Bitcoin which if disposed of could flood the Bitcoin market causing a significant price drop: Sophie Bearman, Bitcoin’s Creator May be Worth $6 billion — But People Still Don’t Know Who It Is (27 October 2017) CNBC <https://www.cnbc.com/2017/10/27/bitcoins-origin-story-remains-shrouded-in-mystery-heres-why-it-matters.html>.

83. See, National Commission on the Causes of the Financial and Economic Crisis in the United States, The Financial Crisis Inquiry Report (25 February 2011) 129.

84. Zappone, above n 21.

85. See, eg, Richard H Thaler (ed), Advances in Behavioural Finance (Russell Sage Foundation, 1993).

86. See, eg, John Twomey, ‘Bitcoin Used By Criminals to Launder Illicit Funds’, Sunday Express (online), 3 December 2017 <https://www.express.co.uk/news/uk/887627/bitcoin-worth-exchange-rate-scotland-yard-criminal-activity-drug-dealing>; Miles Goslett and Nick Pritchard, ‘Criminals are Cashing in on Bitcoins for Illegal Activity from Buying Drugs, Hiring Hitmen and Forging Passports on the Dark Web’, The Sun (online), 8 December 2017 <https://www.thesun.co.uk/tech/5092224/criminals-use-bitcoin-for-dark-web-illegal-activity/>.

87. A Look at the Digital Currency Bitcoin Used by Hackers in Ransomware Attacks (15 May 2017) News.Com <https://www.news.com.au/technology/online/hacking/a-look-at-the-digital-currency-bitcoin-used-by-hackers-in-ransomware-attacks/news-story/1985e355b2fb54cbc8c63093abbdcd17>.

88. Friedrich Schneider and Dominic Enste, ‘Hiding in the Shadows: The Growth of the Underground Economy’ (2002) 30 IMF Economic Issues. The shadow economy in the developing world is estimated at 35–44 per cent of GDP and that in the transitioning world at 21–30 per cent.

89. World Bank, Gross Domestic Product 2017 (15 December 2017) World Development Indicators Database <http://databank.worldbank.org/data/download/GDP.pdf>.

90. A New Tax System (Goods and Services) Tax Act 1999 (Cth).

91. Based on Recommendation 1 of the Dastyari Committee Report: above n 20. The definition is designed to ensures that digital currency has the features of state fiat (government created) currency.

92. Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017 (Cth), amending the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).

93. See, eg, Joshua J Doguet, ‘The Nature of the Form: Legal and Regulatory Issues Surrounding the Bitcoin Digital Currency System’ (2013) 73(4) Louisiana Law Review 1119, 1151–2.

94. Government regulation does not necessarily imply complete moral support, encouragement or endorsement as evidenced by regulation of traditionally socially problematic areas or ‘social bads’ such as cigarettes, alcohol, gambling and prostitution.

95. Such as on a misleading disclosure issue.

96. Any regulatory overlap might also be dealt with by ASIC and the ACCC referring powers to each other. See, ASIC’s submission to the Dastyari Committee: Australian Securities and Investments Commission, Submission No 44 to the Australian Senate, Senate Inquiry into Digital Currency, December 2014, 52.

97. See, Greg Medcraft, Op-ed: Blockchain (26 October 2015) ASIC <http://asic.gov.au/about-asic/media-centre/articles-and-responses/op-ed-blockchain>. See also generally, Kevin V Tu and Michael W Meredith, ‘Rethinking Virtual Currency Regulation in the Bitcoin Age’ (2015) 90 Washington Law Review 271.

98. ASIC, above n 96, 6 [17]–[21], 7 [22]–[24].

99. Australian Securities and Investments Commission Act 2001 (Cth) ss 1(2)(a)–(b).

100. Financial System Inquiry Final Report (Commonwealth of Australia, 1997); Robert Baxt, Ashley Black and Pamela Hanrahan, Securities and Financial Services Law (Butterworths, 9th ed, 2017) 8–9 [1.6].

101. Cryptocurrencies (13 June 2018) at ASIC MoneySmart <https://www.moneysmart.gov.au/investing/investment-warnings/virtual-currencies>.

102. Early ASIC releases included: Australian Securities and Investments Commission, ‘ASIC Issues Stop Order on Pre-Prospectus Publications by Bitcoin Group Limited’ (Media Release, 15-025MR, 13 February 2015); Medcraft, above n 97; ASIC, Overview of Decisions on Relief Applications (Report 420, ASIC, January 2015) [10]–[12].

103. Australian Securities and Investments Commission v Ostrava Equities Pty Ltd [2016] FCA 1064.

104. Baxt, Black and Hanrahan, above n 100, 109–10. See also, Kevin Lewis, ‘When is a Financial Product Not a Financial Product?’ (2004) 22 Company & Securities Law Journal 103 (focusing on bills of exchange and promissory notes).

105. Ibid.

106. This is an area for further research. Insider trading laws have been applied to foreign exchange transactions in Australia (see, eg, ASIC Media Release: Australian Securities and Investments Commission, ‘Two Men Sentenced in Australia’s Largest Insider Trading Case’ (Media Release, 15-058MR, 17 March 2015)) so the application of insider trading principles to digital currency would be similar. It has been suggested that an example of price-sensitive inside information under insider trading laws might be knowledged regarding the loss of bitcoins from an exchange: see, eg, Nicole D Swartz, ‘Bursting the Bitcoin Bubble: The Case to Regulate Digital Currency as a Security or Commodity’ (2014) 17 Tulane Journal of Technology & Intellectual Property 319, 328. Australia’s wide insider trading definitions might also cover, eg, trading on non-public information that a regulator in a major country was planning to take action to curb usage of a particular (or all) digital currency.

107. Corporations Act 2001 (Cth) s 911A.

108. Ibid s 764A(1)(k).

109. Ibid s 761A (definition of ‘foreign exchange contract’).

110. ASIC, above n 96, 12 [50].

111. Ibid.

112. Cf Corporations Act 2001 (Cth) s 765A(1)(m).

113. Corporations Act 2001 (Cth) s 765A(1)(x); ASIC Submission to the Dastyari Committee: Australian Securities and Investments Commission, above n 96 13 [56]–[58].

114. ASIC, above n 96, 14 [63]–[66].

115. Ibid [47]–[49].

116. See also, Rhys Bollen, ‘The Legal Status of Online Currencies: Are Bitcoins the Future?’ (2013) 24 Journal of Banking and Finance Law and Practice 272, 283.

117. ASIC, above n 96, 12 [47]–[49].

118. Ibid 8 [34]. The idiosyncratic list of ‘specific things that are financial products’ in s 764A include insurance, managed investments including superannuation, Australian Carbon Credit Units, margin lending. Section 765A also lists ‘specific things that are not financial products’ even if they fall within the above categories. The equally idiosyncratic list of ‘specific things that are not financial products’ in s 765A include certain credit facilities, reinsurance and funeral benefits.

119. Ibid [43].

120. Ibid.

121. Corporations Act 2001 (Cth) ss 762C, 763A.

122. See, Bitcoin, Bitcoin Core <https://bitcoin.org/en/bitcoin-core/>. See also, Bollen, above n 116, 275–8, 283.

123. ASIC above n 96, 8 [82]–[84].

124. Corporations Act 2001 (Cth) s 764A(1)(a).

125. US Securities and Exchange Commission, ‘Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO’ (Media Release, Release No 81207, 25 July 2017) 1 <https://www.sec.gov/litigation/investreport/34-81207.pdf>.

126. Monetary Authority of Singapore, ‘MAS Clarifies Regulatory Position on the Offer of Digital Tokens in Singapore’ (Media Release, 1 August 2017) <http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/MAS-clarifies-regulatory-position-on-the-offer-of-digital-tokens-in-Singapore.aspx>.

127. Jeffrey Alberts and Bertrand Fry, ‘Is Bitcoin a Security?’ (2015) 21 Boston University Journal of Science and Technology Law 1.

128. Monetary Authority of Singapore, A Guide to Digital Token Offerings (Information Paper, Monetary Authority of Singapore, 14 November 2017) 3 [2.3.1] <http://www.mas.gov.sg/∼/media/MAS/Regulations%20and%20Financial%20Stability/Regulations%20Guidance%20and%20Licensing/Securities%20Futures%20and%20Fund%20Management/Regulations%20Guidance%20and%20Licensing/Guidelines/A%20Guide%20to%20Digital%20Token%20Offerings%20%2014%20Nov%202017.pdf> (‘MAS’).

129. Securities Exchange Commission v Shavers (ED Tex, No 4:13–CV–416, 6 August 2013).

130. Reves v Ernst & Young 494 US 56, 67 (Marshall J) (1990) (‘Reves’). See also, Scott D Museles, ‘To Be or Note to Be a Security: Reves v Ernst & Young’ (1991) 40 Catholic University Law Review 711.

131. Reves 494 US 56, 67–9 (1990).

132. See, Securities Exchange Act of 1934, 15 USC s 3(a)(10) (1934); Nicolei Kaplanov, ‘Nerdy Money: Bitcoin, the Private Digital Currency, and the Case Against Its Regulation’ (2012) 25 Loyola Consumer Law Review 111.

133. Securities Act of 1933, 15 USC s 3(a)(3) (1933).

134. ASIC, above n 96 3 [6]; Corporations Act 2001 (Cth) s 716D.

135. ASIC, above n 96 3 [6], 12 [52], 14 [61].

136. Corporations Act 2001 (Cth) ss 9, 92(1)(c), 764A(1)(b)–(ba).

137. This definition owes something to US law in the early extension of securities regulation in the United States to cover ‘investment contracts’ and ‘participation in a profit sharing agreement’. In SEC v W J Howey Co 328 US 293 (1946), the US Supreme Court held that an offer of land was an offer of a security.

138. A right or interest in a collective investment scheme per Securities and Futures Act (Singapore, cap 289, 2001 rev ed) s 2(1). See, MAS, above n 128, 3.

139. See, MAS, above n 128, 3.

140. See, eg, MAS, above n 128, 11; Corporations Act 2001 (Cth) s 92(2)(b).

141. Also called an Initial Token Offering, a Token Generation Event and a sale of securities of a ‘digital currency investment fund’. The start-up firm may provide an ICO ‘Whitepaper’ which outlines the project.

142. Crowdfunding by means of an ICO may not be the same as the crowd-sourced funding that is regulated by the Corporations Act 2001 (Cth) from 29 September 2017. See, eg, ASIC, Crowd-sourced Funding, <http://asic.gov.au/regulatory-resources/financial-services/crowd-sourced-funding/>.

143. Though strangely, their closest analogy may actually be ‘gift-cards’ which are currently regulated by the ACCC under the ACL: see, ACCC, Gift Cards and Discount Vouchers <https://www.accc.gov.au/consumers/misleading-claims-advertising/gift-cards-discount-vouchers>.

144. US Securities and Exchange Commission, Investor Bulletin: Initial Coin Offerings (25 July 2017) <https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings>.

145. Though possibly not if the token only provides to access to video games on a platform.

146. Australian Securities and Investments Commission, ‘Initial Coin Offerings’ (Information Sheet 225, September 2017) <https://asic.gov.au/regulatory-resources/digital-transformation/initial-coin-offerings-and-crypto-currency/>.

147. Under ASIC Act s 12DA if financial services; ACL s 18 if not financial services; above n 37.

148. See, eg, Paul Latimer, ‘Providing Financial Services “Efficiently, Honestly and Fairly”’ (2006) 24 Company and Securities Law Journal 362.

149. See, eg, Julie Edde, ‘Crypto Exchange BitFlyer Embraces Regulation the Market Fears’, Australian Financial Review (online), 23 January 2018 <https://www.afr.com/markets/currencies/crypto-exchange-bitflyer-embraces-regulation-the-market-fears-20180123-h0mvaa>.

150. Australian Securities and Investments Commission, ‘ASIC Acts to Shut Down Electronic Currency Trading Websites’ (Media Release, 04-366, 9 November 2004).

151. ASIC, above n 96 [109].

152. Mary Starks, ‘Blockchain: Considering the Risks to Consumers and Competition’ (Speech delivered at the Authority for Consumers and Markets Conference Panel, Netherlands, 26 April 2018) <https://www.fca.org.uk/news/speeches/blockchain-considering-risks-consumers-and-competition>.

153. Lev Bromberg, Andrew Godwin and Ian Ramsay, ‘Fintech Sandboxes: Achieving a Balance Between Regulation and Innovation’ (2017) 28 Journal of Banking and Finance Law and Practice 314.

154. See, eg, Douglas Arner, Janos Barberis and Ross Buckley, ‘FinTech, RegTech and the Reconceptualization of Financial Regulation’ (2017) 37 Northwestern Journal of International Law and Business 373.

155. The parallel definition of financial product in the ASIC Act is a little wider than the Corporations Act and means that certain things do not have to be licensed under the Corporations Act but must still comply with the general consumer obligations in the ASIC Act. For example, the prohibition of unfair contract terms may not be limited to financial products (s 12BF).

156. ASIC regulates the equivalent sections in the ASIC Act if they involve financial services. This includes s 12DA, the equivalent of ACL s 18, above n 37.

157. Australian Taxation Office, Tax Treatment of Cryptocurrencies (16 March 2018) <https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia---specifically-bitcoin/>.

158. Australian Taxation Office, GST and Digital Currency (16 March 2018) <https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Financial-services-and-insurance/GST-and-digital-currency/>.

159. Australian Taxation Office, above n 157.

160. Dastyari Committee Report, above n 20.

161. ASIC, above n 96, [50]. See, Australian Taxation Office, Income Tax: Is Bitcoin a ‘Foreign Currency’ for the Purposes of Division 775 of the Income Tax Assessment Act 1997?, TD 2014/25, 17 December 2014; Australian Taxation Office, Income Tax: Is Bitcoin a ‘CGT Asset’ for the Purposes of Subsection 108-5(1) of the Income Tax Assessment Act 1997?, TD 2014/26, 17 December 2014; Australian Taxation Office, Income Tax: Is Bitcoin Trading Stock for the Purposes of Subsection 70-10(1) of the Income Tax Assessment Act 1997?, TD 2014/27, 17 December 2014; Australian Taxation Office, Fringe Benefits Tax: Is the Provision of Bitcoin by an Employer to an Employee in Respect of their Employment a Property Fringe Benefit for the Purposes of Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986?, TD 2014/28, 17 December 2014. It does appear in Australian Taxation Office, Goods and Services Tax: The GST Implications of Transactions Involving Bitcoin, GSTR 2014/3W, withdrawn 18 December 2017, as a quotation from K Tindell, ‘Geeks Love the Bitcoin Phenomenon Like They Loved the Internet in 1995’, Business Insider (online), 5 April 2013, <https://www.businessinsider.com.au/how-bitcoins-are-mined-and-used-2013-4> noting the analogy of Bitcoin mining with mining of ‘a commodity like gold’. There is however US authority in support of the ‘commodity’ view: See, Brendan Pierson ‘Virtual Currencies are Commodities, U.S. Judge Rules’, Reuters (online) March 7 2018, <https://www.reuters.com/article/us-usa-cftc-bitcoin/virtual-currencies-are-commodities-u-s-judge-rules-idUSKCN1GI32C>.

162. Reuben Grinberg, ‘Bitcoin: An Innovative Alternative Digital Currency’ (2011) 4 Hastings Science & Technology Law Journal 160, 199 <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1817857&rec=1&srcabs=2248419&alg=1&pos=1>.

163. Such as the usage of rum as a currency or means of exchange in the early history of New South Wales.

164. Macquarie Dictionary (Revised Edition Macquarie Library, 1985) 378.

165. LabCFTC, ‘A CFTC Primer on Virtual Currencies’ (Primer, Commodity Futures Trading Commission, 17 October 2017) <http://www.cftc.gov/idc/groups/public/documents/file/labcftc_primercurrencies100417.pdf>.

166. Dastyari Committee Report, above n 20, 9 <http://www.rba.gov.au/publications/submissions/financial-sector/pdf/inquiry-digital-currency-2014-11.pdf>.

167. Ibid.

168. Twomey, above n 86; Goslett and Pritchard, above n 86.

169. Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017 (Cth). See, eg, Alan Tyree, Digital Cash (Butterworths, 1997) 84 [4.67].

170. See, eg, AUSTRAC website at <http://www.austrac.gov.au/about-us/austrac>.

171. Nakamoto, above n 23, 6.

172. See, eg, John Bohannon, ‘Why Criminals Can’t Hide Behind Bitcoin’ on Science, (9 March 2016) <http://www.sciencemag.org/news/2016/03/why-criminals-cant-hide-behind-bitcoin>.

173. Attorney-General’s Department, above n 47.

174. Productivity Commission, above n 46, 244 [9.3]; Dastyari Committee Report, above n 20.

175. Attorney-General’s Department, above n 47, [2.3], [4.7]–[4.10].

176. Monetary Authority of Singapore, ‘MAS to Regulate Virtual Currency Intermediaries for Money Laundering and Terrorist Financing Risks’ (Media Release, 13 March 2014) <http://www.mas.gov.sg/news-and-publications/media-releases/2014/mas-to-regulate-virtual-currency-intermediaries-for-money-laundering-and-terrorist-financing-risks.aspx>.