Cryptocurrency One Step Closer to Traditional Finance in Australia

Cryptocurrencies may have been originally created to operate free from control, but the lack of regulation has been harmful for the sector, innovation, and consumer protection. Only with proper regulation to normalise crypto use, will crypto become a widely accepted component of financial trading, wealth retention and financing. THE WORLD IS REGULATING CRYPTO As can be seen from the below chart, many nations are taking the steps to regulate crypto: Countries like Hong Kong and Singapore are out in front in developing and implementing a regulatory framework around crypto. The United States and Canada are in similar phases of developing and implementing their crypto frameworks. The UK and the EU have implemented legislation to fully regulate Crypto with laws coming into effect in 2024. NOW AUSTRALIA WILL TOO On 16 October 2023, the Australian Federal Treasury issued a Proposal Paper for legislating and regulating cryptocurrency trading, storage and financing in Australia, by regulating digital and crypto asset platforms such as crypto exchanges, that operate in Australia. Submissions on the Proposals can be made before 1 December 2023. Treasury estimates that it will take further consultation on exposure draft legislation in 2014 with a twelve-month transition period following legislation being made law. HOW WILL THE PROPOSED FRAMEWORK OPERATE? The new framework will treat digital and crypto institutions like any other traditional financial institutions by requiring them to meet the same standards as any other financial institutions through the issuance and regulation of Australian Financial Services Licences (“AFSL”): The Australian financial service laws are a time tested and well understood framework to mitigate risks involving businesses holding or utilising client assets. Digital asset platforms will need to meet all general licence obligations, consistent with other licence holders, such as: meeting solvency and cash reserve requirements. keeping and submitting financial records. producing product disclosure statements monitoring for and disrupting market misconduct. providing the financial service efficiently, honestly, and fairly. managing conflicts of interest. having a dispute resolution system CERTAIN DIGITAL ASSET ACTIVITIES WILL HAVE ADDITIONAL OBLIGATIONS The proposal would also apply additional obligations to four specific activities: Trading – the exchange of digital asset platform entitlements between account holders. Staking – the participation in validating transactions on a public network. Tokenisation – the creation and exchange of entitlements backed by tangible and intangible assets. Fundraising – the sale of entitlements to fund the development of products and services. Obligations are targeted to address some of the risks that arise from digital asset platform business models and the nature of the tokens they provide access. IS MICHAEL SAYLOR CORRECT? Michael Saylor, CEO of Microstrategy (a USA listed company that holds over US$4Bn in bitcoin) has stated that three things are needed to have crypto become part of the mainstream financial world: A change to fair value accounting for crypto balance sheet holdings. Increased prevalence of bank custody and collateralized lending. Regulations that make it safe to invest in crypto. The new USA based Financial Accounting Standards Board (FASB) rules effective from 2024 has [...]

2023-11-04T13:56:00+10:00October 19th, 2023|Cryptocurrency, FRONT HOME PAGE|

Fool’s Gold: Unveiling the Cryptocurrency Mirage

Fool's Gold: Unveiling the Cryptocurrency Mirage Disgraced NRL star Jarryd Hayne has allegedly recently fallen victim to a significant fraud scheme involving bitcoin investments where he was defrauded by fellow inmate Ishan Sappideen, while serving time in Cooma Jail. The Daily Mail reported that Hayne recently lost $780,000 to con artist Ishan Sappideen, with this incident highlighting the dangers of investment fraud and emphasising the importance of being vigilant while engaging in any types of financial transactions, particularly in the world of cryptocurrency. Mr Sappideen operated a scheme which promised high returns on bitcoin investments, all done whilst being incarcerated in Cooma Jail. This elaborate scam lured unsuspecting victims with the promise of substantial profits at little to no risk. Hayne along with numerous other inmates, fell victim to Sappideen’s scheme resulting in significant financial loses. Mr Sappideen capitalized on the lack of regulation in the cryptocurrency space using this, along with his innate ability to sell his skills, to orchestrate this scam, entangling even well-known figures such as Hayne. What is a bitcoin investment? Bitcoin investment refers to the practice of buying, holding, or trading bitcoin, the most well-known and widely used cryptocurrency. Bitcoin operates on a decentralized network called blockchain and offers potential investors the opportunity to profit from price fluctuations. It is important to note that investing in bitcoin, like any other investment, carries both potential rewards and risks. What should I do if I think I have been defrauded? If you suspect that you have fallen victim to fraud, it is crucial to take immediate action. Here are some steps you should consider: Gather evidence: Collect all relevant documents, emails, receipts, or any other form of communication related to the fraudulent transaction. This evidence will be valuable when reporting the incident. Contact your financial institution: Notify your bank or credit card company about the fraudulent activity. They can guide you through the necessary steps to protect your account and initiate an investigation. Report the fraud: Contact your local law enforcement agency and provide them with all the relevant information, including the evidence you have gathered. Reporting the incident will help authorities track down the fraudsters and potentially recover your money. Notify relevant authorities: Inform regulatory bodies, such as the Australian Securities and Investments Commission (ASIC), about the fraud. They can provide guidance and support in dealing with investment-related scams. Obtain legal advice from a legal firm which specialise in fraud cases. How to get crypto back from a scammer? Recovering stolen cryptocurrency can be a challenging process due to the anonymous nature of digital currencies. However, it's crucial to act swiftly and take the following steps: Notify the cryptocurrency exchange: If the scam involved a specific cryptocurrency exchange, promptly notify their support team about the incident. They may be able to assist you further, freeze the scammer's account, or take preventive measures to safeguard other users. Seek legal advice: Consult with a lawyer who specialises in cryptocurrency and financial fraud. They can guide you through [...]

2023-08-03T14:25:44+10:00August 3rd, 2023|Cryptocurrency|

Pikachu caught up in Federal Court matter between Pokémon Company International and Australian gaming platform PokeWorld

Pikachu caught up in Federal Court matter between Pokémon Company International and Australian gaming platform PokeWorld The use of non-fungible tokens (NFTs) in the gaming industry has risen in popularity exponentially in recent years, as it allows for unique digital assets to be bought and sold on blockchain platforms. However, with this new technology comes potential risks, specifically in the areas of copyright and trademark infringement. One issue with launching a game using NFTs is that creators may unknowingly use copyrighted or trademarked content in their game, leading to legal issues. For example, if a game developer uses a popular character or logo in their game without permission, they could be facing a lawsuit for copyright or trademark infringement. The Pokémon Company International, Inc (The Pokémon Company), a subsidiary of gaming giant Nintendo, has obtained a successful interlocutory injunction against Australian crypto company, Pokémon Pty Ltd (PPL). The interlocutory injunction also was successfully obtained against PPL’s director Xiaoyan Liu. The interlocutory injunction came about when PPL and Mr Liu threatened to release a range of Pokémon-themed Non-Fungible Tokens (NFTs) without The Pokémon Company’s permission. Specifically, The Pokémon Company claimed they did not grant authorisation for PPL to use their intellectual property, including images in their gaming software. While the substantive issues in the proceedings are in progress, the interlocutory injunction provides an excellent example of how to act swiftly to protect your intellectual property effectively. The Interlocutory Injunction In Australia, an interlocutory injunction is an equitable remedy, a relief that sets out what someone must do or not do or to stop that person doing something. There are various reasons why an injunction would be available, whenever required by justice, and includes preventing the publication or transmission of information or the use or disclosure of confidential information. In short, an injunction can be interpreted as ‘pending the result of court proceedings’.  An interlocutory injunction needs an initial application to the court, called an 'interlocutory application'. As a result, a court might grant an injunction order before deciding the substantive issues in the court process. Generally, the court may award an interlocutory injunction when it believes it is ‘just or convenient’ to do so. In deciding this, the court will generally ascertain the following: • parties refusing to enter negotiations; and • Does the inconvenience or injury the applicant would suffer if an injunction were not granted outweigh the potential injury a defendant would suffer if the injunction were granted? (Called the “balance of convenience”). The Pokémon Company’s interlocutory application relied on section 234 of the Australian Consumer Law (ACL) to bring the application before the court. In support of its application, The Pokémon Company set out the reputation of the Pokémon franchise, noting its success since its launch. The Pokémon Company further declared that it was worried that a considerable number of consumers would be misled, deceived, or were likely to be misled or deceived into believing that PPL, "PokeWorld," and the NFTs were affiliated with The Pokémon Company [...]

2023-02-07T20:54:06+10:00February 7th, 2023|Cryptocurrency, Intellectual Property|

Token Holders Up in Arms Over Freezing of Digital Wallet Involving Crypto Arbitrage

There has been an increase in the freezing of digital assets held in centralised exchanges, with token holders demanding answers. The recent FTX saga has only exacerbated the instances of centralised exchanges freezing assets. Understanding why your wallet is frozen requires an exploration of crypto exchanges, arbitrage, and their legal requirements. Both centralised and decentralised exchanges are platforms which enable investors to trade cryptocurrencies and facilitate price discovery. On a decentralised exchange (DEX), transactions occur directly between crypto traders using smart contracts without interference from facilitators or intermediaries. DEXs uphold a key principle of cryptocurrency: to enable transactions to occur between parties without the need for a third party. Essentially, the control provided to a user on a DEX is a key advantage. DEXs allow users to exclusively trade cryptocurrency tokens directly with other users. A centralised exchange (CEX) enables trading to occur on a platform moderated by a private company or third party. Account and customer support services are available, and much like other stock trading websites, investors can buy and sell digital assets which are recorded using a central order book system. Since CEXs would retain custody of all digital assets on the platform rather than allow users to have exclusive access to their wallets, CEXs are much more susceptible to hacks and data breaches. Importantly, the CEX holds the users’ private keys, allowing it to prevent transactions ordinarily pursuant to its terms and conditions. What is crypto arbitrage and is it legal in Australia? Crypto arbitrage is a trading strategy to earn a potential profit by taking advantage of price discrepancies whereby investors purchase cryptocurrency on one exchange and sell it on another exchange for a higher price. Factors such as the fluctuation in trading volume and the latest bids on an exchange order book may contribute to price discrepancies between CEXs. One of the benefits of arbitrage is that it has the potential to balance an asset’s price across markets by attracting additional traders also hoping to exploit price discrepancies. Cryptocurrency arbitrage is perfectly legal in Australia. At present, the Australian framework treats cryptocurrencies as property, in the sense that capital gains tax applies. Additionally, under the current legal framework, cryptocurrency exchanges must be registered with the Australian Transaction Reports and Analysis Centre (AUSTRAC). AUSTRAC is an agency responsible for detecting criminal abuse of the financial system and thus, cryptocurrency transactions and reporting entities (such as digital currency exchange providers) are subject to the Anti-Money Laundering and Counter- Terrorism Financing Act 2006 (AML/CTF Act). The Act places special focus on fulfilling Australia’s international obligations to combat money laundering and the financing of terrorism. In an AUSTRAC report reviewing the AML/CTF Act, it was highlighted that offshore businesses providing services to Australian customers are not regulated thereby gaining a competitive advantage. However, this is a rapidly changing regulatory environment and the existing laws are subject to these changing conditions. Although arbitrage is legal in Australia, CEXs may have to protect themselves against risks such as technical errors, [...]

2022-11-23T13:42:27+10:00November 23rd, 2022|Cryptocurrency|

Australia’s Proposed Legislative Regime To Assist In Protecting Indigenous Culture and Art

We acknowledge the people united by the Yugambeh language who are the original custodians of the local land, rivers, mountains, and sea. We pay our respects to their past and current Elders and look to a positive future for their young people. We acknowledge their continued care of land, their wisdom, their laws and their passing on of knowledge. First Nations cultural expression is firmly connected to over 75,000 years of heritage and continuing practice in Australia. Their art has been recognised both within Australia and internationally. Despite the artistic recognition, current intellectual property (IP) laws in Australia only protect individual artists and do not recognise any communal rights. The inability of current IP laws to protect the creative and traditional ownership of indigenous art and property has been an ongoing problem within Australia. Currently, there are no specific laws that prevent the misuse, distortion or alteration of Indigenous and cultural IP that is communally owned or part of an Indigenous group’s heritage. The Productivity Commission (the Commission) has investigated this problem and released the Aboriginal and Torres Strait Visual Arts and Crafts report in response to the lack of legal and cultural protection offered to Indigenous Cultural and Intellectual Property (ICIP). Since the birth of Non-Fungible Tokens (NFT’s), there has been concern with copyright as the purchase of an NFT is not accompanied by a copyright transfer. Therefore, when an NFT is purchased, only the NFT itself is owned. This challenge stems from the lack of an authentication process and platforms not verifying the people who create (or mint) the NFTs in the first place. Subsequently, this impacts Indigenous artists who are now competing with fake Indigenous artwork or having their art sold as NFTs without their knowledge. Safeguarding Indigenous traditional knowledge and cultural expression is crucial to ensuring that cultural heritage is maintained and passed down from one generation to another. What is the Indigenous Cultural and Intellectual Property (ICIP)? The ICIP refers to the rights that Indigenous people have, and want to have, to protect their traditional arts and culture. Rights protected by the ICIP include the rights to protect traditional knowledge and sacred cultural material and the right to ensure that traditional laws and customary obligations are respected. The Australia Council for the Arts along with the national arts funding and advisory body to the Australian Government Office of the arts have released a set of protocols aimed at bridging the legal gap and providing IP protection by recognising and engendering respect for customary practice. The protocols aim to address key legal and ethical issues of Indigenous cultural material. Furthermore, ICIP covers many differed forms of traditional culture and expression. Who owns the IP of an NFT? NFT owners are not granted any rights under IP unless the creator takes certain measures to ensure that they are. Essentially, copyrighting is a proactive choice for artists whereby they can outline what others are able to do with their artwork. This information may be included in a [...]

2022-11-02T14:59:47+10:00November 2nd, 2022|Cryptocurrency, Intellectual Property|


DEBT RECOVERY INa CRYPTOCURRENCY MATTERS – RETRIEVING ERRONEOUS TRANSFERS CASE: FORIS GFS AUSTRALIA PTY LTD V MANIVEL [2022] VSC 482 Brief Facts Foris GFS Australia Pty Ltd and Foris AU Pty Ltd (Plaintiffs) are part of the corporate group that operates the cryptocurrency trading platform, The proceeding related to a mistaken payment allegedly made to one of its customers, the first defendant (Manivel). It was alleged that in May 2021, instead of refunding $100.00 as intended, $10,474,143.00 was erroneously transferred (the Wrongful Payment) to Manivel after an account number was accidentally entered into the payment amount field by a representative of the Plaintiffs. Extraordinarily, the Plaintiffs allegedly did not realise this significant error until some seven months later, in late December 2021. After making various enquiries of the Commonwealth Bank of Australia (the Bank), the Plaintiffs commenced proceedings in early February 2022. The following day, without notice to Manivel, it sought, and obtained, freezing orders over Manivel’s bank account and assets in an amount reflecting the Wrongful Payment. The Plaintiffs submitted subsequent applications to join additional defendants and sought freezing orders in respect of each of them. The Plaintiffs produced evidence to the effect that Manivel had transferred the bulk of the Wrongful Payment by various payments to the third to eighth defendants, some of which had been used to purchase real estate (Property) and was the basis for the joinder against the other defendants. What were the causes of action? The claim was, substantially, a claim for restitution on the basis that the defendants were unjustly enriched. The Plaintiffs claimed (among other things): The sum equal to the purchase price of the Property from the second defendant payable to either of the Plaintiffs; A declaration that the Property was held on trust by the second defendant for the benefit of the Plaintiffs; and Orders requiring the Property to be transferred to, or alternatively sold for the benefit of the Plaintiffs. What was the outcome? On 13 May 2022, judgment was entered for the First Plaintiff and the following orders and declarations were made: Manivel’s sister (also a defendant in the proceedings) to pay the Plaintiffs the sum of $1,350,000.00; A declaration was also made that the Property was acquired by Manivel’s sister on trust for the First Plaintiff. Further, an order was granted that set out arrangements by which the First Plaintiff was to sell the Property and awarded interest and costs in favour of Plaintiffs. Salerno Law’s services Salerno Law regularly advises and provides debt recovery advice and services to cryptocurrency exchanges and users of these exchanges (among others). Salerno Law also has a dedicated cryptocurrency legal team that can assist with navigating the legal cryptocurrency environment. If you have any debt recovery matters, are the victim of a cryptocurrency scam, or require legal advice for your crypto business start-up, please contact Matt Krog and Inoke Faletau. Author Inoke Faletau

2022-10-06T10:12:48+10:00October 6th, 2022|Cryptocurrency|


AUSTRALIAN CRYPTO BUSINESSES – THE “BULLS” AND THE “BEARS” With the recent collapses of cryptocurrency businesses like Terra Luna, Celsius, Voyager and Three Arrows Capital, is this a strong indication of a long term “crypto bear market” and what crypto-businesses in Australia are most vulnerable?  BUT FIRST, WHAT IS A CRYPTO “BEAR MARKET”? Bear markets are generally defined as a period where supply is greater than demand, confidence in the market is low, and prices are falling (or in some instances collapsing). Pessimistic investors who believe prices will continue to fall are colloquially, referred to as “bears”. The reverse of this is effectively, and colloquially, known as a “bull”. That is, optimistic investors who believe prices will rise.  Unlike ordinary stocks trading on a stock exchange, the crypto market differs in the sense that a dip of anywhere between five percent and thirty percent (and sometimes significantly more) can occur on any given day, without any obvious macroeconomic factors taking place. It can just as quickly “moon” – this is when there is a sudden surge in the market to the upside.  So now that we have briefly outlined the meaning of a “bear market” in the context of the cryptocurrency markets, let’s have a look at which businesses are particularly vulnerable. WHAT BUSINESSES IN AUSTRALIA ARE MOST VULNERABLE?  Salerno Law has identified the following businesses as particularly vulnerable: digital currency exchanges, which includes centralised digital currency exchanges (CEXs) and decentralised cryptocurrency exchanges (DEXs);  decentralised applications (Dapps) that utilise tokens as part of their governance structure;  businesses looking to raise funds as part of an initial coin offering (ICOs), initial decentralised exchange offerings (IDOs), seed round funding for a crypto project, including start-ups and decentralised autonomous organisations (DAOs);  investors (both retail and institutional) and conventional businesses who have been affected by their declining investments, loan defaults and the corollary effects thereof;  stake pool or node operators and “miners” that facilitate blockchain transactions and maintain distributed ledgers in return for “mining” and other rewards or incentives. THE RISE OF DECENTRALISED FINANCE (DEFI) The rise of DeFi and lending platforms in the last two years has made for some very interesting financial news. The yields offered by some of these DeFi platforms can start from ten percent and in some cases reach over one hundred percent. Prior to the collapse of Celsius in early 2022, it was offering yields of up to eighteen percent on deposited crypto assets. Terra Luna (Luna) and the demand for its stable coin - Terra USD, was driven primarily because of a savings protocol called Anchor on Luna’s blockchain. Luna promised twenty percent in annual percentage yield. Luna’s value eventually plummeted from over $100 USD per Luna, to less than $0.005 in several days.  Whilst many crypto assets have significantly declined since the “bull market” of 2021, there are a number that still hold significant value. Even with a sixty percent dip (and some a bit more) in the value of several “blue chip” assets, the [...]

2022-08-16T12:09:36+10:00August 16th, 2022|Cryptocurrency|


NFTs, otherwise known as non-fungible tokens, have grown in massive popularity and have become part of a billion-dollar market backed by optimistic investors who see an inherent value in acquiring these digital assets. Now, there is a different aspect gaining traction in the digital asset space; asset-backed loans utilising NFTs as collateral. The concept is simple and familiar to conventional asset-backed loans. An NFT holder may want to borrow fiat currency or cryptocurrency without selling their assets. Instead, they visit a website that specialises in linking owners of these highly-valued and popular NFTs with lenders willing to accept their NFT as security for a loan. A lender can either be a centralised cryptocurrency exchange which deals with NFT borrowing or it may be part of a decentralised peer-to-peer network. Borrowers can expect a loan amount of approximately 30% to 50% of the value of the NFT, while interest rates can range between 20% to 80% (depending on the popularity of the NFT). Before we unpack the practice and risks of NFT lending, what is an NFT? What are NFTs? NFTs are digital assets containing identifying information which is recorded in smart contracts. The identifying information makes each NFT unique and one-of-a-kind, meaning they cannot be swapped or replaced by another token and could never be exactly the same. NFTs can also be linked to a specific asset and can be used to prove ownership of digital items, for example ownership of a concert ticket. NFTs have often been used to transform a digital work of art, or another collectible, into a one-of-a-kind, verifiable asset which is easy to trade on a blockchain (i.e. the Bored Ape Yacht Club collection). This is in contrast to a fungible token, such as Bitcoin. Bitcoin can be swapped and replaced. If you send someone one Bitcoin and they send you a different Bitcoin back, you will still have one Bitcoin, subject to the fluctuation in value during the period of the exchange. Introducing NFTfi (and its risks!) Since an NFT is a one-of-a-kind and unique asset, naturally, its commercial value is high (depending on the demand). Some NFTs can be worth an astonishing amount of money, making them near-valuable as security to a loan by a lender. The lending arrangement is traditional; if you default on your loan terms, the lender has recourse to your NFT as a secured asset. This is an inherent risk attached to any loan arrangement. An example of a borrower defaulting under an NFT-backed peer-to-peer loan arrangement took place when a borrower collateralised its "Elevated Deconstructions" NFT worth around US$40,000 against a 3.5 ETH (US$12,000) loan. The borrower defaulted under the loan arrangement and lost the NFT, handing the lender a valuable asset. Within a month, the value of that NFT surged which saw its value explode to US$300,000, approximately a 650% increase! Equally evident is the risk connected with highly volatile NFTs. For example, Jack Dorsey, founder of Twitter, sold his tweet as an NFT for US$2.9 million. [...]

2022-07-05T11:24:03+10:00June 10th, 2022|Blog, Cryptocurrency|

LUNA – A Crypto Love Story Gone Wrong

Terra was once hailed as a promising blockchain ecosystem, with a price-stable global payments system and a utility blockchain that allowed third-parties to launch DApps; such as the revered Anchor Protocol, which offered UST staking returns of up to 20% per annum. In the last week, the Terra native governance token, LUNA, and algorithmic stablecoin, TerraUSD (UST), have crashed, with LUNA currently trading at $0.00018, down from its all-time high of $119.18, and UST trading at $0.12, a fraction of the purported 1:1 peg to the US Dollar. How did this happen? Unlike other stablecoins, which are ordinarily pegged 1:1 with a fiat currency and backed by fiat currency reserves or commercial paper, LUNA’s UST peg was based upon an algorithm linked to the minting and burning of LUNA. The algorithm ensured that when UST is minted, the equivalent in LUNA is burned. Accordingly, when UST is burned, the equivalent in LUNA is minted. In theory, the algorithmic stablecoin and calculations served to promote the utility of LUNA and UST within the Luna ecosystem, and ensured that at all times users could freely convert LUNA to and from UST in a risk-free manner. Practically, and taking into account the LUNA Foundation Guard’s considered Bitcoin acquisition strategy, with the downturn in global markets due to a number of factors including central bank interest rate hikes, many UST holders sought to exchange their UST to LUNA to liquidate their positions back to fiat currency. The result of this led to a de-peg of UST from it’s 1:1 USD peg, and the minting LUNA, resulting in an increase of the circulating supply. The fears associated with the de-pegging of UST and the decrease in price of LUNA, as a result of its increasing supply, created immense fear within the market and a vicious spiral of devaluation as holders looked to liquidate their positions. In an attempt to limit any further devaluation, the LUNA Foundation Guard commenced liquidation of their 80,000 BTC holdings to assist in providing liquidity to the token and stabilise the UST peg. However, the liquidation had the opposite effect, instead creating further fear and the reduction of LUNA’s tangible asset holdings which were in fact a key consideration in the valuation and appeal of LUNA. It is reported that the LUNA Foundation Guard’s BTC holdings now sits at approximately 313, nominal compared to the prior holdings of 80,000. With a circulating supply of LUNA sitting at approximately 6.5 trillion, as compared to its previous supply of 345 million, a UST stablecoin built on an algorithm that has failed, the loss of trust in LUNA and UST, and many LUNA supporters losing their life savings as a result of the inflation in circulating supply, it seems unlikely that the Terra ecosystem can salvage itself without the assistance of external capital. Further with the volatility associated with LUNA and UST, many exchanges have moved to delist both LUNA and UST indefinitely, leaving many holders with the inability to trade or liquidate their [...]

2022-07-05T11:24:05+10:00May 19th, 2022|Blog, Cryptocurrency|
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