Australia’s crypto industry is reeling from controversial remarks made by the Australian Securities and Investments Commission (ASIC) Digital Assets Lead during a liaison meeting that addressed initial feedback on a controversial consultation paper.

Rhys Bollen compared Bitcoin to cigarettes used as currency in prisons while responding to questions about applying Non-Cash Payment Facility (NCP) legislation to digital assets, during the meeting on Wednesday.

An NCP refers to any payment method that does not involve physical cash, including digital wallets, credit cards, and cryptos.

The example in question focuses on using stablecoins for payments, which ASIC interprets as triggering an NCP event. However, the guidance's broad language has led to concerns that any digital asset enabling payments—whether Bitcoin or stablecoins—could fall under the NCP classification.

When pressed for clarification, Bollen admitted the complexity of the issue, drawing a provocative analogy.

“In theory, almost anything could potentially be used to make a payment to another person. You know, cigarettes are used in prisons as a way of making payments …,” said Bollen on Wednesday. “If the product is promoted as having this as one of its primary uses, and you see that in the marketing … that’s where we’re getting closer to financial product territory. I don’t really have a bright line test for you.”

Industry leaders expressed concerns that applying financial regulation to tools like non-custodial wallets or software could hinder innovation and drive businesses offshore.

Michaela Juric, general manager of Programs and Partnerships at the Australian stablecoin project AUDD, criticized the potential implications for widely used crypto tools like MetaMask.

“I think this view sets a pretty dangerous precedent. For instance, MetaMask is a non-custodial wallet offering. It’s merely a piece of software that allows the user to sign transactions,” she told Decrypt. 

“If one of the primary functions of MetaMask is to allow the user to send and receive payments, then this interpretation by ASIC may result in MetaMask needing to obtain an AFSL to offer its services to Australian users.

“Trying to apply financial regulation and licensing obligations to mere software will push the already growing exodus of products and services out of Australia,” Juric added. 

Earlier this month, ASIC released the INFO-225 consultation paper, proposing updated guidance for compliance with the Corporations Act. 

The document includes 13 examples demonstrating how digital assets such as stablecoins, staking services, and tokenized securities could be classified as financial products.

That crypto issue

Australia has been tightening its grip on crypto regulation, with ASIC and the government implementing various measures to control the growing sector.

ASIC has encouraged crypto companies to apply for an Australian Financial Services Licence (AFSL), offering a grace period from legal action during the application process. However, companies must justify their decision if they choose not to apply. 

In October 2023, the Australian Treasury released a consultation paper proposing to regulate digital asset intermediaries under the existing financial services licensing framework. 

This proposal aims to address consumer harms while supporting innovation within the crypto ecosystem. 

ASIC has also revised Regulatory Guide 133 (RG 133) for the first time since June 2022 with new requirements for crypto custody. 

Key changes include enhanced security protocols such as cold storage and geographically distributed key backups, stricter risk management processes, and multi-signature transaction controls.

Public feedback on INFO-225 remains open until February 2025, with finalized guidance expected later that year.

Edited by Sebastian Sinclair