ASIC’s two key concerns – misleading and deceptive information in the materials used to market the ICOs and breaches of the financial services laws – have repercussions for anyone thinking about working with crypto assets in Australia.
If a crypto asset is a “financial product” under the Corporations Act, a raft of regulatory requirements will apply to not only the ICO, but also to anyone broking the token or listing it on an exchange. So unless you understand and can comply with these requirements, take care to ensure that the crypto assets you deal in are not financial products.
This isn’t always black and white; legal analysis is often required. Our September 2017 blog, ‘Global Regulation of ICOs’, explored typical crypto financial products. Since then, we’ve analysed some interesting crypto assets and services, including:
- Value of the token tied to the price of gold or an interest rate – likely to be a derivative;
- Token attached to a loan – likely to be a debenture;
- Token backed by an asset like gold – likely to be a debenture;
- Token issued as a reward for repaying a loan or making a loan to someone else – likely to be debentures; and
- Crypto purchasing service – if it only deals in crypto assets that are not financial products, no financial service is provided.
Tokens don’t always fit neatly into the financial product categories; many are hybrids and exemptions are available in some cases.
Here’s a quick list of things to look out for – if one or more of these features are present, the token is likely to be a financial product:
- Token issuers can buy back the coin;
- Token holders have rights to profits of the enterprise;
- Tokens are backed by an asset or commodity;
- Tokens can be converted into another asset;
- Investors have a right to receive profit now or at a later date;
- Investors have the right to buy or sell the coin in the future;
- A ‘smart’ or self-executing contract is embedded in the design of the token;
- Tokens can be converted into shares or equity;
- Tokens holders are lending money and can expect a repayment of the money; and
- Investors are pooling resources to invest in the token.
Businesses that don’t identify whether the tokens in which they deal are financial products and prepare to comply with the relevant requirements early on, may:
- Find that timelines for any ICO will change significantly;
- Have issues finding exchanges and markets who can support secondary sales of the token; and
- Face penalties or the risk that the offering will be shut down by ASIC – which could adversely impact your ability to raise funds and damage your reputation.
So, it’s wise to get advice at the outset. It’s also a good idea to speak to ASIC directly, even if the tokens in which you deal aren’t financial products as ASIC is now responsible for all ICOs and businesses dealing in crypto assets.
By engaging with ASIC’s Innovation Hub, you can benefit from their insights and show them that you’re a responsible operator.
Your meeting with ASIC will go better if you demonstrate that you know what regulatory obligations apply to your token and/or service. For example, for tokens that are financial products:
- The token will need a disclosure document such as a product disclosure statement or registered prospectus or offer document;
- Token issuers and/or businesses that arrange for the issue will need an AFS licence;
- Broking services that deal in the token will need an AFS licence; and
- Exchanges that list the token will need a financial markets licence.
Now that the hype cycle has almost reached full circle, we’re seeing a trend away from “unregulated” tokens and ICOs. Reputable token issuers recognise the advantages of operating in a regulated market, for promoting investor confidence. And it’s usually cheaper to comply from the outset than to deal with regulatory intervention at a later date.
Charmian Holmes is a solicitor director of The Fold Legal
[quote=Anonymous]Actually you have had plenty of substance and all of the foregoing in previous posts from various sources.
1. Private currencies won’t work and even some Governments go broke. There has NEVER been a successful private (non state) currency. Some private issues based on precious metal coins held their value only on the value of the base metal.
2. You need public assets and the power of monetary policy and taxation to support a currency.
3. FIAT currency is relatively riskier based on items 1& 2.
4. Blockchain will enable instantaneous settlement for value and this is not dependent upon crypto currency. Blackchain and crypto currency are seperable. It’s a big mistake not to understand this.
5. Crypto generation theory is fundamentally flawed because in practice you can simply invent and/or manipulate the tokens on issue. If you photocopy real currency, you will go to jail.
6. Crypto evalgelists exploit people’s ignorance of a) economics, b) economic history and c) technology
7. Waffen Buffet, the SEC, the RBA, ASIC any many others all have, at a minimum, severe misgivings on the promotion of crypoto currency and ICOs.[/quote]
[quote=Anonymous]Actually you have had plenty of substance and all of the foregoing in previous posts from various sources.
1. Private currencies won’t work and even some Governments go broke. There has NEVER been a successful private (non state) currency. Some private issues based on precious metal coins held their value only on the value of the base metal.
2. You need public assets and the power of monetary policy and taxation to support a currency.
3. FIAT currency is relatively riskier based on items 1& 2.
4. Blockchain will enable instantaneous settlement for value and this is not dependent upon crypto currency. Blackchain and crypto currency are seperable. It’s a big mistake not to understand this.
5. Crypto generation theory is fundamentally flawed because in practice you can simply invent and/or manipulate the tokens on issue. If you photocopy real currency, you will go to jail.
6. Crypto evalgelists exploit people’s ignorance of a) economics, b) economic history and c) technology
7. Waffen Buffet, the SEC, the RBA, ASIC any many others all have, at a minimum, severe misgivings on the promotion of crypoto currency and ICOs.[/quote]
Not sure if Jape is responding above (coming up as Anon), but I appreciate a measured and educated response that has been provided here.
I used to think the same thing about all of the above points until I started researching more about this technology (books, videos and articles).
The only point I fully agree with above is #6, and that is in relation to the scammers only. As they say, Scammers are gonna scam, doesn’t matter what medium they use. I wholeheartedly agree that there are a lot of scammers and a lot of scam coins in this space which are and will always be worth nothing.
Never before in history has there been a technology like Bitcoin and blockchain, which is why private currencies didn’t work in the past; there was a central source (the issuer) that could be found and stopped. The difference with Bitcoin is that it’s a trusted protocol operating over a trustless network via a vast amount of geographically disparate computers and as such there is no central source to go after and kibosh. The only way to stop Bitcoin is to ‘turn off’ the entire Internet (yes I know how ridiculous that sounds). The creator(s) of the technology have solved the Byzantine Generals problem which long plagued computer scientists.
Blockchain and cryptocurrency are NOT separable. The tokens that make up cryptocurrencies – from Bitcoin to Ether to Monero – are the means by which one participates in public blockchain protocols. This is not optional, it’s a fundamental feature of the technology. If a public blockchain protocol is valuable, then the tokens through which one participates in it accrue value.
Anyone can create their own cryptocurrency (there are thousands of them around), but it doesn’t mean that the currency will be worth anything; just like kids playing in the schoolyard might create a ‘currency’ out of marbles, or cards or something else they all use and value. The value is derived from the functionality of the technology itself. Bitcoin and other established currencies can’t be copied; that’s one of the key features of the underlying blockchain technology and why it has stood the test of time. You physically could copy the data, but trying to gain a consensus over the vastly distributed network of nodes would see your attempt fall flat. Bitcoin and other cryptocurrencies are constantly under attack by hackers. The only weak points with Bitcoin and cryptocurrencies in general are the centralized exchanges. See the weak link here; centralization. The Bitcoin protocol itself has never been hacked.
Let me ask you this; what current form of currency – name any one – can you carry in your mind? I can’t think of any other than cryptocurrencies (via memorization of a seed code for a cryptocurrency wallet). You may not think Bitcoin has any value, but there are plenty of other people out there that do. If you can remember a seed code, you can literally have nothing but the clothes on your back. As long as you remember your seed code, once you get to a computer, you can generate a new wallet and transfer your funds, which you can then exchange either for fiat currency or goods and services, where accepted by the vendor.
VanEck is going through the process required to release a Bitcoin ETF. They are one of the first (if not the first) and more will follow.
As far as point #7 is concerned, none of these institutions (as a whole), nor Warren Buffet, have a solid grasp of cryptocurrencies. Asking Warren Buffet about cryptocurrencies is tantamount to asking Steve Wozniak for a comprehensive discussion about economic theory. He might have a bit of an understanding about it, but he’s not a renowned expert in his field. You’re asking the wrong person.
I implore you to do some further research about the rest of the points mentioned as you’ll see they have all been very well debunked by many, but I have heard nobody put it better than the aforementioned Andreas Antonopoulos. I will not attempt to put his salient and comprehensive points forward, but all I can say is watch one – just one – of his videos on the basics of Bitcoin and you’ll see what I mean.
You would make a terrific Scientologist Marek! You should try it.
Well that degraded quickly…..
Don’t forget to have the last word Marek. We’re waiting…
[quote=Jape]We all wonder as well why you “take the the time” to type out these responses Marek – they’re just rubbish. [/quote]
“We all wonder” – who gave you the authority to speak for everyone? I’m also not sure if your only position is to troll, however in any of these discussions you never add anything of any substance, you merely dismiss everything said with simple, one-word responses or hackneyed phrases. How is it rubbish? What substantive information do you have to add which will fuel intelligent discussion? From the brief amount of times you have posted, it almost seems as though you are threatened by this technology, scared of what you might find out if you only did a little bit of research on the subject.
You may have heard this as a youngster, but it’s entirely applicable here: if you don’t have anything worthwhile to say, it’s best not to say anything at all.
I’ll keep all your posts and I’ll remind you of all of them when all the crypto rubbish is worth ZERO.
It is of little consequence whether I’m right or wrong. I just haven’t seen any compelling evidence that shows that ALL cryptocurrencies will be worth zero – and I actively search for it. In fact the bulk of the evidence I have seen – through dedicated research on the subject – points the opposite way.
You don’t need to keep my posts. The nature of the internet is they’ll be easily found in years to come, but if it helps you sleep at night then by all means, be my guest.
Yes it will be of consequence whether you are “right or wrong” because you are spruiking this rubbish based on some wacko future tech theory in a public forum and so a lot of misguided people have or will yet lose money on the crypto scam.
Can you not think of anything to say other than repeating the same content over and over again, which, by the way, is simply your opinion? You’ve cited no references or studies and your contribution to these comments is only based on your own presumptions. You can continue spouting your opinion over and over again, but it adds nothing to the discussion.
To which “wacko future tech theory” are you referring? Again if you’re going to attack the content, please ensure that you have – and cite – a basis for doing so, otherwise it’s just a repeat of your opinion.
Also, are you now taking the position of ‘Protector of the Misguided’? If any person is reading any of these comments (written by me, you or anyone else) and makes a decision to buy ANY asset solely based on that, then they must take responsibility for what will come of their decision. I am merely citing examples and providing direction for where people can learn from others who are significantly more intelligent than me in this field. It is up to the readers to choose what they do with this information.
We must remember that we are making comments on the IFA site. Do you think that the IFA would be posting any articles relating to crypto assets if they felt that crypto is just a scam, and will all end soon? Why waste their time with these articles when there are plenty of other topics to write about?
I’m yet to see you respond to any of my questions and I am fairly certain I won’t receive a considered response, because it appears as though you don’t have one.
I have no ill will or malice towards you personally, but I do like an intelligent discussion. I’m open to new ideas and I’m completely OK with being wrong. As new information becomes available, I will analyse this and may change my mind on previously held views. What I don’t think is useful is just attacking someone’s character or ideas without having anything other than an opinion to back yourself up.
Actually you have had plenty of substance and all of the foregoing in previous posts from various sources.
1. Private currencies won’t work and even some Governments go broke. There has NEVER been a successful private (non state) currency. Some private issues based on precious metal coins held their value only on the value of the base metal.
2. You need public assets and the power of monetary policy and taxation to support a currency.
3. FIAT currency is relatively riskier based on items 1& 2.
4. Blockchain will enable instantaneous settlement for value and this is not dependent upon crypto currency. Blackchain and crypto currency are seperable. It’s a big mistake not to understand this.
5. Crypto generation theory is fundamentally flawed because in practice you can simply invent and/or manipulate the tokens on issue. If you photocopy real currency, you will go to jail.
6. Crypto evalgelists exploit people’s ignorance of a) economics, b) economic history and c) technology
7. Waffen Buffet, the SEC, the RBA, ASIC any many others all have, at a minimum, severe misgivings on the promotion of crypoto currency and ICOs.
I’ll save you a few hours a day, Marek. You’ll never find that unbiased article because analysts and commentators who believe in it will fervently argue that it’s a viable option. On the other hand, those that don’t aren’t going to waste their time penning articles as an antidote for whatever is in the Kool-Aid. It’s binary, you either love it or think it’s a scam.
I think those that “just don’t like it” really haven’t looked deeply enough into it. Anyone who has done the research will see that while it is not a panacea, there’s definitely something more to it and it’s clear that it won’t be a “flash in the pan”. This wasn’t as clear maybe a few years ago, but now, we’re really seeing the beginnings of something huge. I am excited to see what the future holds. Only time will tell how things work out, but what an interesting time to be alive!
[quote=Anonymous]And remember how much money people lost investing in it when it first came out.[/quote]
Some people lost a lot, some people made a lot. Many people were buying something they had absolutely no idea about because, like anything that is overhyped, everyone thinks it will continue going up forever. This kind of thing is going to take years to play out, not weeks or months. Of course if you invest for a short time period in a nascent technology like this you have an exponentially higher likelihood of losing money. However buying and holding long-term is going to give you a much better chance, particularly if you never intend to get out of crypto assets (i.e. selling your crypto back to fiat). This isn’t about buying in fiat money so that you can sell back to fiat money (although some people treat it as such). It’s about buying something which may well have value in the future. There are many great references out there to learn about crypto assets (not all of which are intended to be used as currencies, by the way, hence my use of the term crypto assets). I would suggest reading “The Internet of Money” volumes 1 and 2, or looking up the author, Andreas Antonopoulos, on YouTube for a good grounding in this technology. It will be worth your while to at least have a basic understanding of this.
Oh no. I think Marek is back! Crypto is a pump and dump scheme people. Don’t touch it!
I’m not going to resort to ad hominem attacks, all I will say is that if you work in the financial sector, get educated on something you will most likely have to understand in the not-too-distant future.
I don’t need to study this worthless crypto rubbish which is just, in fact, a total scam. The “story” is almost played out now and it will all be over soon. Seek life elsewhere Marek.
Really? On what do you base your hypothesis?
Maybe they are, maybe they aren’t, however it is highly probable that they will become a much bigger part of the financial landscape as time progresses. You can either stick your head in the sand and pretend they don’t exist or educate yourself about this highly sophisticated and world-changing technology. Remember how clunky the internet was when it first came out?
And remember how much money people lost investing in it when it first came out.
It’s either a viable currency which means it should only have a face value – but be backed by the power of the issuing institution (not some internet random) or it should be an investment in and of itself – which a currency can’t be as it doesn’t produce anything.
Please learn about the technology before making further uneducated comments. There is far more to it than what you have mentioned, including but not limited to the fact that not all crypto assets are intended to be used as currencies. Peer-to-peer lending with smart contracts, programmable money, micropayments, these are just a few things that will become possible not too far from now.
Okay then. Please enlighten us with one clear example explaining the distinction between crypto as a currency vs it being an investment.
I’ve already posted the name of an expert in this field who could explain every single facet of crypto assets in a far better way than I ever could. I can only lead a horse to water. I’ll say it one more time: have a listen to Andreas Antonopoulos speak about the basics of Bitcoin. If he cannot enlighten you, nobody can.
Firstly, ‘Crypto’ is not one asset, currency or token, it is a whole ecosystem of data transmission using cryptography to secure transactions. The implementations of cryptographic tokens are many and varied.
There are currently thousands of crypto tokens out there at the moment, many of which will fizzle away into nothing and many which already are worthless. However it is a near certainty that we will see a few of these tokens become more widely adopted, for various reasons. Here’s an example:
I’m sure that some of the readers here use Dropbox. Whilst this is a great system, it comes at a risk due to the centralized nature of its services, it effectively becomes a honeypot for hackers. It has already been the victim of a significant hack in the past and anyone using Dropbox services has to trust their ability to maintain a level of security that is ‘unhackable’. If we then compare this to a service like Sia or Storj (crypto tokens used for resource sharing), which split encrypted chunks of data across multiple computers across the globe – possibly your computer if you decide to ‘rent out’ some of your excess storage space – this makes it exponentially harder for a hacker as each computer only stores an encrypted chunk of your data, so without the other pieces and decryption key, it is useless to them. Golem is another one that allows people to ‘rent out’ their computer power for computing-intensive calculations such as video rendering and advanced maths and science applications, thus preventing these end user from having to purchase very expensive computers for the same task. I shouldn’t have to say this, but anyone can see the value behind a service like these, once in full operation.
So if anyone thinks they would like to use these services in the future, they can currently purchase some of the abovementioned tokens at a significant discount and hold on to them (and store them safely offline in ‘cold storage’ so they are invulnerable to hacking) for the long term, where they are likely to cost more in the future, as more people use the service. They can then start using their tokens for these services – tokens which they would have to buy anyway, but now cost a lot more – or, they could decide to sell the tokens for whatever currency they are using (fiat or crypto) or exchange them for tokens in other services that are of more use to them.
The above is just a single example of where crypto tokens could be purchased as an investment, in that right now they are very cheap, so the outlay to purchase them is minimal and the downside loss is capped, whereas there is no cap on the upside. If you are incredulous, do your own research!
As far as crypto being used as a currency, we’re already seeing this happen in places like Venezuela, Zimbabwe and Japan (where Bitcoin is accepted as legal tender). The price of Bitcoin (and all cryptocurrencies) at the moment is volatile and will continue to be, but as there is a finite amount of Bitcoin that will ever be created and it still has the most development going on behind the scenes (lightning network, for example), it is probable that the value will increase over the longer-term. However as already mentioned, it will take years, not months. When I say value, I’m not necessarily referring to the fiat price at a point in the future, I’m referring to using Bitcoin directly to purchase goods and services at such time when the purchasing power has increased in the future.
Here’s another brief example of the usefulness of cryptocurrencies compared to our incumbent payment systems:
Can you pay someone a fraction of a cent? Even using current electronic payment systems, the answer is no. This can be done with Bitcoin and other cryptocurrencies (Bitcoin, for example, is divisible up to 8 decimal places into units called ‘Satoshis’). This opens up a field for ‘micropayments’, where people can provide simple online web services, or even entertainment such as videos, and rather than funding content via ads, you might pay the equivalent of fractions of a cent to use this content.
I have no idea which crypto tokens will end up being the most used, nor do I know the future in any other sense. All I can say is that with the huge range of functionality these tokens offer and the decentralized nature of their networks, it is a certainty that crypto will not go away and will only become more and more prevalent.
I have to stress that these are not assets that one would recommend to someone as a financial adviser at this stage, but to simply wave them away as a fad is short-sighted at best.
Each time I type out one of these responses I wonder why I take the time. It seems that most responders on here are happy to live in the past and hope that nothing will ever change. Change is inevitable, and if you don’t embrace it, you’ll be swept away. My hope here is that just one person will read one of these responses and decide to think outside the box and look into this interesting and incredibly useful technology. If they do, my job here is done.
We all wonder as well why you “take the the time” to type out these responses Marek – they’re just rubbish.
I can’t believe that people are still talking about craptocurrencies as if they are a viable investment option…