The recent de-banking of Binance Australia by Westpac, along with the exchange suspending PayID-based AUD deposits broadly has sent a few tremors though the local crypto scene.
To get a handle on how serious that might be for the industry, Stockhead spoke with the Chief Marketing Officer of CloudTech Group, Liam Bussell.
CloudTech Group, per its website, is “a multinational organisation that provides FinTech solutions to governments, businesses and individuals worldwide”.
Binance, meanwhile, is the largest crypto exchange by trading volume, and Binance Australia is the local subsidiary of that global organisation.
‘Not a major concern in Australia yet’
Hi, Liam. Regarding Binance Australia’s current issues with on-ramping and off-ramping AUD fiat currency, do you think that is a worrying precursor for further crypto de-banking in Australia?
I think the question shouldn’t be whether this a precursor for potential further crypto de-banking, but more around risk and regulation.
As quoted by Scott Collary at Westpac, the primary reason for Westpac disassociating themselves with Binance is a growing number of scams, especially in offshore cryptocurrency exchanges.
This, however, does not really pose a threat for Australian businesses, which are fully regulated, as they can respond to changes quicker than global businesses to local market conditions.
I don’t think this is a fault of Binance, it’s simply two global businesses with differing priorities. The precursor probably came during the collapse of a number of popular banks such as Silicon Valley and Signature a few months ago.
The ironic thing is those banks did not collapse due to crypto exposure, they collapsed because of poor understanding of the internal exposure.
So this is not a major concern in Australia yet, but regulators and businesses in the crypto industry space should be trying to find a mutually beneficial path forward.
‘The tall nail gets the hammer’
When it comes to Australian exchanges, why has this issue only hit Binance at this point, do you think? There are other industry-respected crypto platforms here that are not yet experiencing the same level of banking scrutiny.
It’s unfortunate that Binance was the one impacted by this, but Binance is the largest crypto exchange not only in Australia but also the rest of the world.
If we go back to 2018 during the ICO [initial coin offering] boom, the ICOs, which were heavily pursued by the SEC and other regulatory bodies, were the ones associating themselves with famous actors and influencers.
When organisations get very popular, they instantly get on the regulator’s radar and, unfortunately for Binance, which may not be acting in any way that is different from other crypto exchanges, sometimes “the tall nail gets the hammer”.
Encouraging signs from Hong Kong
Is Australia in danger of following a “Chokepoint 2.0” path that the US government and regulators appear to be engaging in with regards to the crypto industry over there?
To answer this… if we go back only five to six years, Australia was one of the leading nations in the world when it comes to cryptocurrency regulation. The ASX started working with Digital Assets to build a blockchain-based project for the stock exchange but that largely fell to the wayside.
Organisations in the space eventually moved to Malta for their friendly regulations. The ECB eventually got wise to this and shut it down and suddenly Malta was no longer a crypto hub. Then came Dubai. People who have been in the industry a while remember Gibraltar before that.
CloudTech was also one of the companies that set up entities in the UAE. While benefiting from the opportunities and low tax threshold, there was a lack of innovation in the space.
Hong Kong is probably now the leading place to be for their comfortable regulatory environment but it was not a market leader until quite recently. Regulation there has advanced in leaps and bounds.
We can only hope Australia follows a similar trajectory to acceptance.
Banks are not to be blamed
Is it understandable that banks take a cautious stance on crypto in this uncertain macro and regulatory environment?
I think banks are not to be blamed, it’s like two countries trying to work together but speaking different languages. Airbus now makes half the plane in France and half the plane in Germany – eventually, over time they’ll learn how to work together.
I think there are two things happening: crypto natives, cypher punks, the OGs – whatever you want to call them – make up only 10 per cent of the whole crypto market and many of them have come from a banking background and have shared their frustrations with traditional finance.
On the other hand, there are people who just generally dislike banking, which can be accounted for in the rise in popularity of Bitcoin post GFC.
There are varying philosophies but if you want to do proper on-ramp and off-ramp, you do need a partnership with a bank at some point.
Australia needs a proactive approach with the industry
What do you think needs to happen in Australia for the cryptocurrency industry to move forward with adoption?
There are two possible directions that adoption can go in the Australian crypto industry.
Firstly, it can go in the direction of the US where there is regulation on what is allowed but there is no clear regulation on what is not allowed – and this can create a sort of grey area.
On the other hand, other jurisdictions, such as in Hong Kong or Europe, are very clear on what is allowed and what is not. And this proactive approach of working with the industry is the direction we want Australian regulation to be heading in.
Since partnerships with banks are essential for adoption, the risks and compliance teams of those banks don’t like grey areas – eliminating them or minimising them is the best step forward for adoption.
What we see a lot is that banking technology teams can be very familiar with the technology, but they have no practical experience of crypto “in the wild” and they just hesitate at that first step.
‘It’s akin to an AFL fan not following the NRL’
Bitcoin and crypto seems to be becoming something of a political/partisan issue in the United States. Less so in Australia, but do you think there’s an element of the government here biding its time with a wait-and-see approach?
Well, governments will not really focus on anything unless it is seriously on its radar. It’s akin to an AFL fan not following the NRL – if it’s not of interest, then there’s no need to bother about it.
Of course, we want them to be more proactive in their approach but it seems unrealistic. If you don’t care about something, you tend not to have strong opinions.
Is Australia missing an opportunity with a slow approach to regulations? Or is the token-mapping a sensible course?
Token mapping is a step in the right direction. Eliminating the grey areas, ensuring proper KYC and AML, and even KYCC (know your customer’s customer) are all important steps that go a long way in mitigating risks.
The advantage with digital assets is they are easily traceable – you won’t know exactly who the person is but you’ll know the wallet that the funds are in.
Chainalysis and Elliptic are very robust analytical tools that can be used for tracing but it is my understanding that many of those in regulation and enforcement are not really well-versed in using these. Education is another factor for regulation and adoption.
Pushing hard for regulation
How is CloudTech involved in the regulatory discussion regarding crypto, and what is its stance and viewpoints?
CloudTech Group is primarily interested in innovation in the crypto industry. And that’s by virtue of the fact many of us in the company have been in the space for well over a decade. We have seen that where there are grey areas, there are also going to be bad actors trying to exploit regular people.
We’re pushing for regulation so those interested in the space can participate safely and understand that the news coming out from the industry is not just hype or FUD (fear, uncertainty, doubt).
Our approach is to look for products or ideas that have real-world applications of technology, can streamline generic processes in life and are actually useful and not all hype.
Most of the time these big ideas involve working with existing businesses (like banks) or other businesses. We see these guys as potential partners, not the enemy.
Is there hope for bullish market conditions once more?
Do you believe crypto adoption (and the market) can begin to pick up again in time? What will it take for that? Any timeline predictions?
Traditionally, fluctuations in the market happen in every 2 to 2½ year cycles. If we go back to 2014 and observe the peaks and troughs of the whole industry, it is remarkably consistent.
However, there can be variations with the intensity of the bear market and the most recent one was really bad.
With all the things that are happening in the world right now – inflation, banking issues, uncertainty – these tend to accelerate the bear market rather than the expected downturn.
With that in mind, I would imagine an upturn in the market within the next 12 months but this is still not certain.
This interview was edited lightly for clarity. None of the information or views presented here should be construed as financial advice.