Australia’s New Crypto Rules Could Push Smaller Platforms Out

0:00 Anyone that is currently operating as an exchange and has not put in at least an application to have their A for sell, theoretically, they can't operate already. Wow. Okay. All right, everyone.

0:12 You may have seen some ex-posts about people saying the whole Australian crypto industry is falling apart with regulation and asset coming in and changing things up. And we are definitely going to see a lot of changes coming into the Australian crypto space in 2027. And I think we need some clarity about what's going on here. So all this fear mongering can slow down, I think. It's because it's quite a scary place if you don't know what's going on. But thankfully here, I have Michael Milmeister from StormRake joining me on this episode to talk through what is happening, what this ASIC consultation phase is, and what are we going to expect coming up in 2027. So Michael, welcome to the podcast.

0:57 Awesome. Thanks for inviting me, Pete, and great to be here on this beautiful day in Melbourne. Is it usually beautiful in Melbourne?

1:07 For my international viewers, they wouldn't be aware of the weather patterns in Melbourne where it's like four seasons in one day.

1:16 Exactly. We do get the four seasons in a day, but today seems to be absolutely glorious outside. I'm looking at Albert Park, and it's fantastic. Awesome. Happy to be here talking to you.

1:29 All right. Now, this whole blow up on X recently about this CP392, which is a consultation process being brought about by ASIC. Can we get a breakdown about what is actually happening here and what's coming into place within Australia over the next six months?

1:49 Yeah, look, Proviso, that I'm not a complete regulatory expert. We have a team inside StormRake that has to focus on this and they do a fantastic job. But things are certainly changing. We're moving from a completely unregulated environment to a regulated one. And that's happening through a range of legislation. Obviously, the largest thing that's happened is prior to 30th of September, which has already passed, everyone in the crypto space that is now required to have a license, had to have an application in Verasic prior to that date.

2:23 And I think more than 140 different entities have done that. There's been some confusion over who should get a license and who shouldn't. But, I mean, for us, it's pretty clear that we... do need to be licensed. So we've put our application forward. I guess it's something that we expected internally for a long, long time. So if you asked us five years ago, we would have said financial regulation would come into Australia pretty soon. And so it's taken a little while, but it's here now. And within a short period of time, we're going to see who the players are in the industry that have their license and are registered. And then going forward, it looks like there's new legislation coming out Yeah, it's quite interesting.

3:06 So I've been following all this regulations that's coming in the space. There was a digital asset framework act, and now they're moving towards this new consultation process. So I think it's got a digital asset platform. Can you explain what the difference here is? Do you know much about this to speak to our audience?

3:30 Look, in the industry, there's a difference between exchanges, and brokers such as us. So we are a digital asset broker and we use multiple exchanges as part of the execution process for our clients to seek the best possible execution price. Both of those has been captured as Dapps, digital asset platforms under this new legislation. And the Dapp in itself is a financial product. So even if you're a Bitcoin only exchange, potentially the fact that you're running an exchange captures you as a dApp and requires you to have an AFSL. So that's quite interesting. You know, for example, if we could compare it to say art, right, you can trade art and it can be in the millions, but those guys don't need a financial services license because

4:19 art is not a financial product. Bitcoin is not a financial product, but you still potentially need that license, which is quite different and interesting how they've decided on that.

4:29 Very interesting indeed. So what actually happens past this particular day? I think it was the 8th of April next year. What happens if exchanges don't have licenses out of all these ones that have applied? What happens to them? Does that mean I can't use them anymore or they get flagged?

4:48 I believe the April date is different. This is these new regulations coming out and still in the consultation phase. So as an industry, we still have a chance to influence how those laws would look. But in terms of you being able to access certain exchanges or not, that's kind of already there. Anyone that is currently operating as an exchange and has not put in at least an application to have their AFSL, theoretically, they can't operate already.

5:19 Wow.

5:20 Okay.

5:20 Does this stifle the industry with all these licenses and regulations? Because I feel like as a small operator, like a startup founder myself, I would have to apply for these licenses. I have no idea how much these licenses cost, but I'm assuming they're expensive and we need lawyers and everything to back them up as well. Do you think this is stifling the innovation in the industry?

5:42 A couple of things there. So in terms of costs, I think the main cost is the time put in. So time of internal resources, putting everything together, the whole application, which can take a very long time. There's questions back and forth and so on. Most companies will get external help as well. and obviously that costs a lot of money.

6:02 So by the time, you know, it might take six months or nine months to get a license. Um, you've actually spent a lot of money and post that once you have the regulations in place and you've got all these extra requirements, you've also got to work out how to put that into the system. And, uh, that may mean hiring extra people. It might mean changes to the process, uh, which is also time consuming and everything else. So, Yes, there's a definite cost to it, and it does mean smaller operators have to consider whether they want to go through that process or not. So I think AUSTRAC tracked well over 300 registered entities, whereas only 140 have applied for their license. So that means a whole heap in

6:53 between have either not applied or are no longer operating. Does that stifle competition? Yes, it probably does. If that means 100 to 200 to 300 small operators have gone out of business as a result of this, that means, yes, consumers have less choice. I come at it from an economics background. I've got my undergraduate degrees in economics and finance.

7:18 And for me, yes, there is an impact on the economy of overregulation, for sure.

7:26 But this stuff is being brought in to protect the retail users and consumers. Is that correct? Or is the government just trying to track everything so they can ensure they can collect more tax on this? Because that's what people are seeing. That's what I'm seeing on X. People are like, this is just, you know, the Australian government stepping in on the industries to ensure that they get their cut. What's going on here exactly?

7:52 I think that's part of it. It's hard to know what... what their motivations are. But you can see, like, historically, there's been a war on cash, for example. Governments want to get rid of cash because they see it as a black economy. They see it as something that they can't see, can't control, and can't tax. And yes, they would like to have a broader tax base, I'm sure.

8:15 So that's part of it. And they see, I think, crypto and Bitcoin as a potential cash-like asset if people are trading it peer-to-peer. So the peer-to-peer stuff is where they would love to get rid of, I think. At the same time as Australia has announced this, in Russia, they've just announced all peer-to-peer transactions potentially are going to become illegal completely. And you cannot take your funds off an exchange to a private wallet. So while they're allowing trading, they're also forcing it to be within the system in entities that are directly in the purview of the government.

8:56 Are we heading towards the same sort of thing or not? I don't know.

9:01 This goes against everything crypto stands for, why it was started in the first place. And I don't know. I don't think there's anything that we can do about it. If you want blockchain technology to exist in the real world, it's something that we just have to suck up and accept. I don't see any way out. else around it.

9:27 Um yeah i know at a recent conference in sydney and my comment was are we building something brand new that's exciting and interesting or are we just becoming part of the financial system uh and look some of the regulations do force us to become part of the financial system And is that a good thing or not? That'll leave that up to people to decide, but you're right.

9:53 It's not exactly what the industry was started for. You know, in the early days, this is a peer to peer technology. and that's in the white paper that's in satoshi's white paper it's a peer-to-peer currency or money that you can control yourself and you don't need a third party no intermediary is required and uh this legislation does does look at you know how everything's tracked and uh who's involved in between and those third parties have to report. And that's a problem for some people. Sure. I think, look, the key thing is that privacy should not be a crime in and of itself. You know, money laundering is a crime. Sure. Terrorism financing.

10:35 Yep.

10:36 That's a crime. Sure. But if a person, an individual wants privacy for whatever reason they, they want, um, they don't want people to know about a certain type of, uh, a car that they buy or what they buy at the supermarket. They should be able to have that privacy to be able to protect the use of those assets.

10:55 And that should not be a dirty thing. That should be inbuilt. Cash gives you an element of privacy and crypto certainly threatens to. However, if governments force people to go through a third party and have all those transactions reported, that would be a problem and it would be outside of what the initial idea behind Bitcoin was. Yeah.

11:20 I've got a couple of follow-up questions from this. First of all, you mentioned the whole privacy side of things. How do you see privacy tapping into the cryptocurrency space? There is quite a narrative around privacy chains and private transactions, shielded transactions and everything. Do you see a place for those types of solutions in what we have at the moment?

11:44 And could they be compliant and regulated within the current framework that's coming out as well i.

11:50 Mean aside from regulation i've seen moves within bitcoin circles to put privacy natively on the chain to an extent and if that happens i think that'll be a really positive thing for the industry because to an extent you know bitcoin can't be stopped right bitcoin is there permanently it cannot be stopped can't be turned off any individual country that tries will fail and it will move offshore but people will still be able to use it so That part is really important. That's why we're being regulated right now as opposed to, look, if you can't beat it, you have to kind of bring it in, right? So that's kind of what's happening. For many, many years, I think, you know, governments were kind of laughing at Bitcoin or

12:35 didn't even know anything about it. Then they started laughing. Then we're getting to a stage where they've realized it's going to stay. It's going to be around. It's not going to go to zero. So now we're going to regulate it. That's the stage we are at right now. As an industry, I think we have to try and shape that regulation as much as possible so it's actually workable and it does not reduce the positive economic impact that it might have.

13:03 So who's asked for this regulation? Is this all top-down from the government? Is the banking industry stepping in saying, hey, we want a slice of this? Is it the consumers for a consumer protection side of things? Where are you seeing this being pushed from?

13:18 Look, the real answer is I don't know. But if it's being reported that there's an international framework here, then it could be higher than Australia. And I mean, that sounds a bit conspiratorial, but it's not. I mean, that seems to be in the discussion paper, right? That we're talking about sharing information via international means and so on and bringing Australia into similar regulatory frameworks that exist overseas.

13:47 That's the kind of language that's being used. So if that's the case, it's clear that there is a push from somewhere else. And the Australian regulators, I think, need to consider whether this legislation actually helps Australia and Australians and Australian consumers and everything else. They have to be focused on their own country first. And if the benefit is somewhere else other than Australia, then that's something that is not helpful. We should only be putting legislation forward that's actually helping Australia.

14:16 Yeah.

14:17 So I don't know if that makes sense to you.

14:20 Yeah, it totally does make sense. I've forgotten what the framework is called, the international framework. I think it's CARP is its acronym. But I believe that's what we're trying to align ourselves with so that way international reporting can be done through different agencies. From what I understand, it's all around money laundering and anti-terrorism and sanctions and whatnot.

14:43 But it's quite a big framework. Quite a big global framework.

14:48 Look, the attempt to stop terrorism financing, fantastic, right? But are we destroying the ability for normal individuals to transact freely? And that part is really important. You can't only focus on the, you know, hundredth of 1% of transactions. What about the 99.99% that are totally legitimate and they're being slowed down? That's the biggest problem. And that whole framework has led to, on the banking side of things, banks being so strict with transactions that regular investment transactions that are flowing towards buying Bitcoin are being stopped at bank level because they're treating anything to do with crypto or Bitcoin as a red flag. They shouldn't be doing that.

15:41 That in and of itself is not a red flag. transactions should be able to flow freely if they're from clients that these banks know, they've made the decision, they want to go ahead, and yet the bank is saying, no, we think that's too much risk.

15:58 I'm seeing a lot more of that recently. I've seen it on Reddit, on X, on various social media platforms, Australian users complaining that their bank's are blocking crypto transactions. This is everyday work, is this setting up their own self-managed super funds or just putting some money aside, part of their investment or whatever it is, into cryptocurrencies as a hedge against inflation or whatever their strategies are. And they're coming up saying, you know, this bank is blocking my transactions. What other banks do you suggest that I actually start working with? So we're seeing a lot more of that. And it's kind of scary, but I guess...

16:38 It's the bank's appetite to risk and potentially being blocked by regulators and whatnot.

16:45 Yeah, absolutely. The banks are scared of the regulatory system and they don't want to have a problem. So they would rather cut a whole chunk of transactions and even at the risk of people walking away from them as clients because they're so focused on the regulations. Now, that's not ideal, but the other part that's not ideal is that there's really very little choice in banking, right? So if it's not one bank, it's going to be the next one, and it's so similar because they're under the same framework. They're doing the same things. They've got employees that move between one and the other. They're very, very similar.

17:27 It's got a slightly different name, but internally, they're very, very similar. So it's a problem. There's not a lot of consumer choice. And coming back to, you know, your earlier question of what happens when, you know, if some people don't get their license and there's less entities out there, there will be less choice. In a healthy economy, sometimes businesses go broke because of the market, because they've made the wrong decisions, they've been badly managed, they go broke.

17:55 In banking, that doesn't happen. And the reason is that they're kind of protected species. because we have the kind of four pillar policy. They have kind of a government guarantee. As long as they do the right thing by the government, government will make sure that those guys still exist. And no matter how bad the banks get, they still seem to exist because there's nowhere else to go.

18:18 You're painting a very rosy picture for me here. But we saw that with the, you know, the GFC, the major banks around the world collapsing and the government's just bailing them out. And, you know, it's very similar here. We weren't as impacted as much as many other countries around the world, but still we're.

18:35 We had a banking crisis more recently in the US where a couple of regional banks went broke because they didn't have that same guarantee, right? So if you're a smaller bank, we'll let you go. But- If you're a large bank, we'll protect you no matter what. In terms of economics and investment, that means that the decision makers within those banks can take much riskier decisions than they would otherwise. And that's one of the things that led to the financial crisis in 2008. They were taking gigantic bets and they know they can. Some people thought, oh, these guys must be stupid, but they're not stupid. They're doing it based on their situation and their situation Yeah.

19:17 It's telling them that they can take risks.

19:20 They've got the protection. They know the taxpayer will just end up forking out the bill afterwards, which is us, which is really unfortunate.

19:27 It's always the people. It's always the people that get it, unfortunately. And as a CEO of StormRake, I'm here to serve my clients. I want to give the best possible service. And it's not because of regulations that I'm forced to give the good service. I'm giving the good service because I want clients to come back time and time again because they've had a great experience. It's in my own self-interest to provide excellent service. That's how we look at it.

19:59 We want to repeat business and we want to be here for the long run. That's the most important thing.

20:03 All right, so from a consumer point of view then, with the new regulatory frameworks coming into place next year, all these changes that are happening, Australia looks like it's clamping down on the whole crypto industry. As a consumer, what can we do to prepare ourselves for these regulatory changes?

20:23 Should we be self-custodying now? Should we look at the more compliant solutions such as what StormRake have to offer for our customers, for your customers? What should we be doing to prepare ourselves for the upcoming changes?

20:38 Yeah, there's always more you can do. Obviously, education is very important and We want people to learn as much as possible about how they store their money, how they invest it, how it's regulated and treated, and how they can hold money in their own hands. And yes, self-custody is part of it, but it's not for everyone. We have to be very careful here because I've seen lots of situations where people have taken self-custody and not been able to protect those funds and lost a lot. So, That's why I said the education part first. That's because that comes first. Before you can store coins yourself and take on that enormous responsibility, you have to know what you're doing really, really well. We've seen so many pitfalls

21:22 recently that people must know what they're doing. That's part of it. It's also not putting all your eggs in one basket. I think you need a mixture of assets. You need to have funds that are more easily accessible quickly for any emergency. You need to have longer-term funds. that are earning for you on your behalf while you're not working or while you are working either way. Very true.

21:49 I kind of digress a little bit, but I also want to know how this compares all these regulatory changes. How's it compared to other places around the world? Because one of the other things I've seen recently is a lot of Australians wanting to pick up and just move overseas and, you know, move all the assets. I know there's an exit tax and all that, and I've looked into those type of aspects. But how does Australia compare, or how do you think it will compare once the regulations come into place with other countries around the world, such as Singapore, Dubai, or even the UK and the EU with their MICA laws? How does it look compared to those other regulatory areas?

22:30 Yeah, I think we're certainly better than MICA. Those regulations have become pretty cumbersome and very difficult. We had a couple of European clients that we've had to say no to, unfortunately, because we don't want to have anything to do with that. And that's the kind of downside of over-regulation that you're going to see. We will not enter Europe until those regulations improve. So Australia is better than that, but we're heading in that direction, I think. So we have to be very, very careful. We do have operations in the US now. We've been there for maybe four months and it's been fantastic. Downside over there is you've got a license per state. So that's very complicated. But once you get it, it's pretty good. And certainly the current administration

23:22 is very pro-Bitcoin, very pro-crypto. have talked about protecting the rights of citizens to self-custody and own their own currency and money. So in a way, it's kind of better over there. New York has a very separate regulation called the BID license, so that's a bit more difficult. But largely, the rest of the country is pretty good. And yeah, Dubai and Singapore, you mentioned they have their own legislation as well. We're not in either of those, so I couldn't tell you too much about it, but it's a possibility for us down the track. At least the laws are relatively clear and stable, which is good. Okay.

24:10 I might have to dig into the differences in regards to what's happening here in Australia and Singapore and Dubai as well, since many people have mentioned those ones too.

24:20 All right.

24:20 So do you think overall the reaction that we've seen on X is justified or is it a bit of an overreaction at the moment?

24:28 Look, X can be pretty crazy sometimes. Yeah. You've got to be careful what you read on there. But look, I think people do see that we're moving towards far more regulation, not just in this industry, but others. And there is a little bit of anger out there and regulators do need to have an idea of of how people feel about what they're doing. So I think that kind of feedback loop is important. They talk about consultations.

24:58 Part of the consultation should take in public opinion, I think. And if that public opinion is strongly, let me handle my money myself, then they need to listen to that. Separately, their outreach to industry needs to be a little bit better, I think, as well. to make sure that they capture all the main voices. They know who the 140 people or entities are that have applied for a license. They should be able to get an opinion. Interesting. Okay.

25:26 So, are you encouraging everyday users to submit to this consultation process that ASIC is putting up?

25:34 Look, everyday users tend to ignore these things. That's the reality of it. And it's easy for the regulators to put up a paper like this, a discussion, and they know that most people will not read it and not have an opinion. But that's where it's up to us in the industry to let the regulators know what we think about it and be really practical and work with them. Okay.

26:01 At the end of the day, I think most regulators do kind of, do try and do the right thing. Yeah. So we can't speak to them and work together. Okay.

26:12 So I'm going to encourage people to actually read over the, what was it called? CP392. I've got links to it. I'll put links to it in the show notes down below. You can put it through AI and get a shorter summary for it and put your opinions and your position in there as well. So you can get like a little summary against or for your position. So I'm going to encourage people to do that. Talk to your exchange, talk to your broker, whoever it may be that is working in the cryptocurrency space here in Australia as well.

26:47 And have your voice heard. So if you're not writing and submitting something directly to ASIC, talk to your exchange, talk to your broker, talk to your provider. and get them to speak on your behalf. So at least your voice is heard and a good decision could actually come out of this brand new framework that is being put in place. So links down below, guys, for all of that. Now, Michael, before you leave, I'd love to know a little bit more about StormRake and what you provide for your clients as well. I know you're a brokerage firm. We've started working with you a little bit over the last couple of months, but I'd love to get the whole spiel about StormRake and what you guys offer for your customers.

27:28 Yeah, absolutely. Look, we've now become Australia's largest independent digital asset brokerage. We offer, obviously, Bitcoin and other assets around it. We have a great platform that clients can use and make it very, very easy. But the most important thing, I think, is the service. We offer a complete white glove service experience, meaning a client that comes in gets allocated an actual human being, a broker, not AI, uh, and they can speak directly on the phone and sort out any issues. And the team here is absolutely fantastic.

28:03 They have great relationships with the clients and that's the kind of service that doesn't really exist in our world anymore. You can't, can't get that calling Telstra or Optus, um, or really any exchange in the world. So we're very different to an exchange in that way. We're really, uh, Yeah, able to help in the nitty-gritty issues and all sorts of things. Yeah. Yeah.

28:27 I was talking to one of your consultants, Cushy, about the service and little things like if you hear something in the media about Ledger being spyware devices now and leaking your seed phrases, you hear that, you kind of get worried. But being able to pick up the phone, talk to you guys and get some advice and consultation around that because I may be self-custodying all of the assets that I've purchased through you guys on my Ledger device and could be compromised, I don't know. So being able to pick up the phone, talk to you and being able to get some advice around that is, I think, highly valuable, especially for people that aren't very technical and know what's happening in the industry. And it's good to

29:08 have someone to call to actually help through those processes. So it's good to have StormRake around to help other Australian customers.

29:15 Yeah, absolutely. Of course, she's one of our senior brokers, which is absolutely fantastic. And if her clients are listening to this, they will absolutely agree with me. Awesome. All right.

29:25 Michael, thank you so much for joining me on this podcast episode to talk through what's happening in the space, preparing us for these upcoming changes. And I do encourage everyone to read through the CP392 to get a better understanding of this consultation process, the consultation paper itself, and see what's coming up for the Australian crypto space. All right, guys, links down below. Don't forget to follow StormRake as well.

29:53 All the show notes are for you guys. And I'll see you all in the next episode.

29:57 Thank you. See you, babe.