Cryptocurrency is a volatile and speculative asset class, and investing in it can be risky. This is especially true for Australians, who face several unique challenges when investing in cryptocurrencies. Here are the top five risks facing Australians who invest in crypto, based on research and statistics.
Regulatory Risk:
The regulatory environment surrounding cryptocurrencies in Australia is complex and evolving. While the Australian government has taken steps to regulate the industry, the lack of a comprehensive framework for cryptocurrencies leaves investors vulnerable to regulatory uncertainty. In 2018, the Australian Securities and Investments Commission (ASIC) warned investors of the risks associated with initial coin offerings (ICOs) and highlighted the lack of regulation around them. More recently, in 2021, the Australian government passed new legislation aimed at strengthening the regulation of digital assets. However, experts have raised concerns about the effectiveness of this legislation, and its ability to protect investors from scams and frauds.
Cybersecurity Risk:
The security of cryptocurrencies is also a significant concern for Australian investors. In 2019, the Australian Competition and Consumer Commission (ACCC) reported that Australians lost over $21 million to cryptocurrency scams in the previous year. Cybercriminals often target cryptocurrency exchanges and wallets, which are vulnerable to hacking attacks. In fact, Australia has seen several high-profile hacks of cryptocurrency exchanges, including the 2019 hack of the Australian-based exchange, BitPoint. These hacks have resulted in the loss of millions of dollars worth of cryptocurrencies.
Market Risk:
Cryptocurrency markets are notoriously volatile, and Australian investors face significant market risks when investing in crypto. The value of cryptocurrencies can fluctuate wildly in short periods of time, and many investors have lost large amounts of money as a result. For example, in January 2018, the value of Bitcoin, the largest cryptocurrency by market capitalization, plummeted by 65% in just one month. While the market has recovered somewhat since then, it remains highly volatile, and investors should be prepared for significant fluctuations in the value of their investments.
Liquidity Risk:
Another risk facing Australian investors in crypto is liquidity risk. Cryptocurrencies are not as liquid as traditional assets like stocks and bonds, and it can be difficult to buy and sell them quickly in large amounts. This can make it challenging for investors to exit their positions during periods of market stress or volatility, and can result in significant losses.
Taxation Risk:
Finally, Australian investors in crypto face taxation risks. The Australian Taxation Office (ATO) has issued guidance on the taxation of cryptocurrencies, stating that they are subject to capital gains tax. However, the complex nature of cryptocurrencies can make it difficult for investors to accurately calculate their tax liabilities. In addition, the ATO has indicated that it will be cracking down on cryptocurrency tax evasion, which could result in penalties and fines for non-compliant investors.
Cryptocurrency carries RISK for Australian investors – there is no denying this, and they should carefully consider the risks before investing. These risks include regulatory uncertainty, cybersecurity threats, market volatility, liquidity challenges, and taxation complexities. Investors should also seek out professional advice and conduct thorough research before investing in cryptocurrencies.
