A Senate report says Australia needs to introduce new rules for digital asset miners, such as tax breaks and a licensing regime for crypto exchanges, to be "competitive with Singapore, the UK and the US".
The report, released on Wednesday by the Senate Committee on Australia as a Technology and Financial Centre, also called for clarity on rules on when banks can refuse to do business with a cryptocurrency business client.
Many of Australia's leading financial institutions are not involved in the cryptocurrency sector, despite its huge growth last year, due to high risks.
Australia needs to fix its rules to make room for organisations with a "decentralised autonomous company structure", as well as its tax rules to ensure people only pay taxes on digital asset trading when they receive "clearly defined capital gains", the report said.
"This means Australians can have more control over their financial destiny rather than being dependent on endless intermediation," committee chairman Andrew Bragg said.
"The committee has recommended a comprehensive cryptocurrency framework to ensure Australia's leadership. We will be competitive with Singapore, the UK and the US," he added.
Australia is trying to keep up with the growth of the digital asset economy, which includes crypto exchanges, blockchain-based security tokens and non-interchangeable tokens, or "NFTs", which offer ownership of online real estate.
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The Australian Taxation Office notes a "surge in trading" since early 2020, when the Covid-19 blockchain sparked a wave of investment activity online, the report says, pushing prices of some cryptocurrencies to record highs.
However, estimates of the size of the Australian digital asset market as a whole vary widely. A sixth of Australians will own A$8 billion ($6 billion) worth of cryptocurrency in 2021, with bitcoin being the most popular, according to researcher finder.com.au.
Digital market participants welcomed the report, but warned that the rules need to be changed faster.
The report makes "strong recommendations, (but) the speed at which we are trying to implement regulatory change and the speed at which this technology is changing are just the opposite," said venture capitalist Mark Carnegie, who is interested in digital assets.
Caroline Bowler, CEO of bitcoin exchange BTC Markets, said the report exceeded expectations as it contained "pragmatic recommendations... offering a huge opportunity to put Australia on the global financial technology map".
