A huge surge in the number of people buying and selling the cryptocurrency bitcoin has wreaked havoc on exchanges, seeing some closing to new deposits, and others warning of long delays for people looking to convert their gains to cash.
One bitcoin exchange – Coinspot – has blamed Australian banks for these problems, saying they are refusing to cooperate with crypto-companies.
The banks themselves, meanwhile, have asserted their right to refuse to execute transactions that look suspicious.
The whole business has exposed an atmosphere of confusion among Australia’s various financial regulators, which appear to have been completely unprepared for the huge surge in interest in the shadowy world of cryptocurrency.
This lack of regulation means Australians jumping on board the bitcoin bandwagon are essentially unprotected, leaving them at the mercy of unregulated bitcoin exchanges that were designed to deal with much lower trading volumes, and are staffed accordingly.
The bitcoin boom
Last year the value of a single bitcoin went from $1,300 in January to a peak of around $27,000 in mid-December, before settling at the end of the year at around the $20,000 mark, where it has remained for the last couple of weeks.
Asher Tan, chief executive of bitcoin exchange CoinJar, told The New Daily his exchange had seen its user base grow by ten times over the year, adding other exchanges had probably seen similar growth.
But he said this massive increase in CoinJar users is still only served by around 20 staff.
“Everyone is scrambling to provide better service to users,” he said, adding customer support was a particular challenge.
While CoinJar has avoided any major problems, other exchanges have not. Australian exchange BTC Markets has warned customers bitcoin withdrawals are delayed due to a backlog of orders.
And US exchange Coinbase, one of the the world’s largest, has told customers they may have to wait up to two weeks for bitcoin to dollar wire transfers to show up in their accounts.
Most dramatically, CoinSpot, one of Australia’s most trusted exchanges, is not taking any new deposits, blaming Australian banks for not working with them.
In a note on its website, CoinSpot wrote: “We assure you we are just as unhappy with the situation as you but unfortunately Australian banks have been so far unwilling to work with the digital currency industry which leads to frequent account closures and strict limits on accounts whilst they remain operational, in effect debanking our industry.”
CoinSpot did not respond to requests to further explain the nature of the problem.
The banks told The New Daily that, while they did not bar customers from making payments through bitcoin exchanges, they reserved the right to block transactions that raised certain flags.
A Commonwealth Bank spokesperson said the bank was “receptive to innovation in alternative currencies and payment systems” but said it did not recommend using existing currencies as they did not meet “minimum standard of regulation, reliability, and reputation”.
However, CBA said customers could “interact with these currencies” as long as they complied with the bank’s terms and conditions and all relevant legal obligations.
Westpac took a more hardline approach, saying: “Westpac has controls in place to actively verify the identity of our customers and monitor the activities of those customers. Where we can not verify the origin of transfers we may act to ensure we comply with Australia’s anti money laundering obligations.”
A regulatory black hole
The New Daily contacted all four financial regulators: ASIC, which protects consumers from dodgy corporate practices; APRA, which makes sure financial institutions have their finances in order; the Reserve Bank of Australia, which regulates the payment system; and AUSTRAC, which polices money laundering, welfare fraud and funding of terrorism.
Currently not one of these regulators has any oversight of the burgeoning crypto-currency sector, and only one – AUSTRAC – is set to begin regulating the sector.
A spokesperson for AUSTRAC told The New Daily new rules would soon be introduced requiring digital currency exchanges to register with AUSTRAC and comply with anti-money laundering obligations. This would include the obligation to report suspicious matters to AUSTRAC.
Mr Tan of CoinJar told The New Daily that the bitcoin industry would welcome more regulation.
“It’s already happening and I think it’s inevitable. Regulation will legitimise the industry and the banking sector will become more comfortable with crypto-companies,” he said.