Lamb, bungy jumping and crypto

Comment: Crypto has a regulation problem but it’s not as obvious as you might think. Sure, it shouldn’t come as a surprise that a digital currency designed to operate independently of any government would be challenging to regulate. But that’s precisely what needs to happen.

In July 2021, Parliament’s finance and expenditure committee began an inquiry into the current and future nature, impact, and risks of cryptocurrencies. The government actively wanted to learn more about crypto. From a crypto-industry standpoint it sounded promising. In August 2023, a 112-page report was released, including 22 recommendations to help grow the crypto sector. It seemed like New Zealand was finally starting to take crypto seriously.

In early March (a full six months after the report was released), the Government responded. But the response – a mere three pages long – was underwhelming and didn’t have much to offer. 

The three pager warned there were “evolving risks to markets and investors from digital assets, and cryptocurrency has been an enabler of ransomware and some other transnational crime and scams”.

It finished off with, “the Government is actively monitoring international developments around the treatment of digital assets and will continue to consider appropriate policy settings to manage these risks …”.

Since the report was published, 11 Bitcoin ETFs have been approved in the US and the price of Bitcoin has increased 148 percent. Just last week Bitcoin hit record-breaking highs with prices soaring above NZ$117,000. Anyone interested in crypto knows that it’s fast moving, but despite the slow response, it’s not too late for the Government to take action and reap the economic benefits of crypto.

What could the government do?

1. Create a New Zealand-specific crypto licence framework

Contrary to popular belief, many in the crypto community aren’t anti-government or anti-regulation; we’re actually waving our arms, calling for it. The crypto landscape has boomed in countries where crypto-specific licensing has been introduced. It creates the transparency, protection and assurance that people need to feel confident investing in crypto. 

Crypto-specific licensing would also give crypto businesses much needed clarity on what products they can and can’t offer. It would create certainty for crypto businesses, encouraging investment, growth and creating jobs and income.

States as diverse as France and Dubai have introduced crypto licensing frameworks and closer to home in Asia Pacific, Japan and Thailand, all of whom have reliance on tourism, have likewise developed regulations meant to protect users and drive transformation. 

So what’s stopping us from doing the same?

2. Encourage banks to work with cryptocurrency exchanges 

Since crypto broke onto the scene, traditional banks have often behaved like the older sibling — they don’t want to hang out yet are quick to place blame, but at the end of the day, they’re part of the same financial lineage with a common goal of ensuring financial inclusion. 

Just like the introduction of Bitcoin ETFs, the easiest way to encourage new investors is to create on-ramps into crypto that are familiar, simple and trusted. But even after years of appeals, banks have made it increasingly difficult for individuals to transact with crypto exchanges.

The Government could step in to help bridge the gap between traditional finance and crypto. By coming together, Aotearoa would be taking massive steps as one of the first countries encouraging financial innovation. Banks can leverage the strengths of blockchain tech to make their own systems more efficient, safer, and cheaper, while crypto exchanges can access a wider range of services, like payment processing, that are essential for their growth. It’s a win-win. 

3. Incentivise innovation 

Previous governments have offered incentives so generous that for industries such as filmmaking, gaming and space exploration, New Zealand offered a deal that couldn’t be ignored. If the Government can draw in the likes of Jack Black or make it possible to build rockets just down the street, incentives for Web3 technologies could see the biggest boom in innovation and economic development that our country has ever seen. We have a history of harnessing these opportunities when we see them, and crypto is ripe for the taking. 

I fear New Zealand will get left behind. If we look across the ditch, Australia is nearing the release of its own crypto-specific licence. In the Chainalysis 2023 Global Crypto Adoption Index, Australia ranked 40th in the world for leading crypto adoption, while we fell far behind in 89th place. 

New Zealand shouldn’t have to rely on its primary sectors to keep the country economically afloat. When hundreds of billions of dollars of cryptocurrencies are traded every day around the world, why should we have to rely on bungee jumping in Queenstown or lamb exports? Imagine the revenue, international business opportunities, new jobs, and potential world-firsts that could be flooding into New Zealand’s tech sector. It’s the same imagination that has propelled even oil-rich Gulf states to wisely diversify their economies.

It’s about time we showed the world that New Zealand is truly open for business.