Following the crypto trail, illicit or not

Volatile cryptocurrencies are not for the faint-hearted.

Some buyers even have them tattooed.

The world’s dominant cryptocurrency Bitcoin is the most inked, according to research by industry platform Crypto Head.

Bitcoin is well ahead of second and third placegetters in the tattoo stakes – #dogecointattoo and #ethereumtattoo, according to the analysis of Instagram hashtags and Google search volumes.

Cryptocurrencies have also gained the dubious honour of being in demand as a cloaked asset as the Russian rouble gets locked out of international credit card transactions, transfers and financial markets.

Lambros Photios, chief executive of Sydney-based software firm Station Five, says there are concerns the Kremlin and its cronies will evade sanctions by using Bitcoin and Tether, which is pegged – or tethered – to the US dollar.

Because they work as a handy and anonymous way to store value, an individual or organisation can convert a local currency into these cryptocurrencies.

Bitcoin and Ethereum initially rallied amid intensifying sanctions on Russia as trading volumes surged.

But now some crypto is being cashed in and converted into hard assets such as real estate, keeping a lid on gains and raising fears a complex and illicit money trail could lead back to Australia.

Swift, Visa, Mastercard and other large institutions that process payments no longer facilitate payments in Russia, but people can stay involved with the international economy through crypto.

Australia’s AUSTRAC says it has joined other financial intelligence agencies to follow the Russia-related money trail, but market experts are sceptical about how the anonymous transactions could be traced back to source.

Cryptocurrencies are included in Australia’s sanctions regime in relation to Russia, according to the Department of Foreign Affairs and Trade.

The targeted financial sanctions impose asset freezes on listed individuals and entities, and ban Australians from directly or indirectly providing assets to them.

AUSTRAC is also monitoring international funds transfers to detect financial crime, including sanctions evasion.

“Regulated businesses, which include digital currency exchange providers, are required to identify and report suspicious matters to AUSTRAC,” an agency spokesman says.

“This can include efforts by individuals or businesses to avoid Australia’s sanctions laws.”

Estimates of legal Australian exposure to cryptocurrency vary widely, inked or otherwise.

Some say one in five are dabbling in crypto, while tax office data shows fewer than a million taxpayers are regularly transacting in the alternative currencies.

Telstra CEO Andy Penn, speaking as chair of a cybersecurity industry committee that advises federal government, says education is needed with more than three million Australians now owning a crypto asset.

People need to be taught how to safely interact with digital currencies, just as they would protect their bank details, particularly as crypto is the currency of choice for cyber criminals, he says.

Meanwhile, cryptocurrency investors are continuing their largely unregulated wild ride.

Ethereum, the second-largest cryptocurrency, is down almost a third from February highs – as is Bitcoin.

But despite recent volatility, Bitcoin appears to be consolidating around $US40,000 ($55,000) and is still worth more than twice it was a few years ago, traders say.

United States President Joe Biden’s new executive order on cryptocurrency has provided some support.

The US Treasury and other agencies have been directed to develop policy on the growing digital asset sector and evolving financial markets.

Also bringing some certainty, US regulators are being encouraged to figure out how to safeguard against any systemic financial risks posed by digital assets.

CMC Markets analyst Tina Teng tells AAP the Russia-Ukraine war has certainly sparked interest in the advantages of the decentralised nature of the crypto transactions.

Ms Teng says there is now a “consolidation opportunity” for crypto assets.

She also notes a recent surge in Cardano, with transaction volumes unusually three times higher than Bitcoin over a 24-hour period.

Australia is making its own moves on light touch regulation of the sector, with new crypto asset licensing and custody requirements released this week for industry feedback by May.

But the focus is on tax revenue, rather than tracking crooks and oligarchs.

The Board of Taxation will report back by December on the taxation of digital transactions and assets such as crypto.

“Government can’t guarantee your crypto any more than it can guarantee a painting or a share in a company, and nor should it,” the current Minister for the Digital Economy Jane Hume says.

“But we can make sure Australian exchanges, custodians and brokers – Australian players in the crypto ecosystem – work within a regulatory framework that is better, safer and more secure.”

More than 100 countries, including Australia’s central bank are also piloting or developing Central Bank Digital Currencies (CBDCs) and have released a progress report.

Rather than a decentralised cryptocurrency with few rules, a CBDC would see each central bank in control of its own network and digital banknotes.

International settlements using digital sovereign currencies could make cross-border payments faster, cheaper and safer, according to the central banks of Australia, Malaysia, Singapore and South Africa.

Central bankers have been trialling experimental platforms with the Bank for International Settlements Innovation Hub.

But regional links to Singapore are expected to come before any global platform linking all central banks and citizens.

Marion Rae
(Australian Associated Press)