The tension between financial innovators and governments globally is on view within Australia where the innovative fintech sector, fresh off the global success of BNPL company Afterpay’s acquisition by Square, is at loggerheads with the banking sector.
Schot-Guppy reports that fintech companies in Australia are being dropped as customers by banks at a higher rate than their peers overseas, amid fears of falling afoul of anti-money laundering and anti-terrorism laws.
Entrepreneur Michaela Juric from the Bitcoin Babe peer-to-peer trading platform said she was turned down by 91 financial institutions because of her business.
But the other driver to “debanking”, many in the fintech community suspect, is the desire for major banks to maintain their dominance.
Last week Schot-Guppy testified to the Select Committee on Australia as a Technology and Financial Centre that 150 fintech companies have been “de-banked” by major banks.
“Instances of debanking occur at far less frequency on other markets,” she said. ”So I could see jobs and innovation moving there.“
Yet the real impact of crypto’s rise may run past the banking sector.
Australian National University’s Dr Philippa Ryan said cryptocurrency will be a “wake-up call for the banking industry”, she said, yet the heart of banking will remain lending against property and tangible assets.
“A bigger problem will be for the black market and tax system,” and the ability to move wealth between nations without attracting tax or oversight. Ryan said cryptocurrency “undermines borders and undermines government.”
Bitcoin and cryptocurrencies’ disruptive nature is also key for the kind of innovation that has emerged as a new area of geopolitical competition.
China has launched a digital currency controlled by its central bank that gives it the potential for international influence that could challenge the US dollar. Facebook is trying gamely to promote Diem (previously known as Libra) as an alternative to a China-dominated future.
Bitcoin, which is controlled by no government, has the prospect of forming an alternative trading system and shadow economy, as it is doing in Lebanon.
As El Salvador imposed so-called “B-Day” on unprepared citizens (Millennial-bro President Nayib Bukele wants to use volcano power to support energy-intensive bitcoin mining), the clash between innovation and caution seen internationally is evident at home.
Governments don’t want to regulate cryptocurrency yet, says Robert Potter Co-CEO of Internet 2.0 because “they don’t want to crush innovation.”
“But there is a tension between letting this grow and not letting it get out of hand,” he said.
For now, the cryptocurrency and fintech community enjoys a lot of freedom compared to banks that have obligations that don’t go away, he said.
It’s “entirely reasonable” for banks to have an interest in maintaining their status, he said “but they’re regulated into those positions as well”.
There is an inherent cultural difference between the cryptocurrency and the banking community, too.
“When you listen to people who build these crypto exchanges they often talk about disrupting financial institutions and the regulatory environment they have created,” Potter said.
Whether supervision will catch the risks created by innovation is not clear.
One of the triggers of the global financial crisis of 2007-8 was the banking innovation mortgage debt repackaged and resold in ways that no one could fully understand.
The financial collapse, which unregulated innovation helped trigger, kicked off a steep economic recession, bringing pain to the public in the US and Europe.
The nature of cryptocurrency means that its risk is increasingly carried by the public. Encrypted, and peer-to-peer trading could cloak vulnerabilities that – like misinformation on social media -–emerge only after the technology is fully adopted.
When exchanges collapse, or are hacked, or when an owner loses their crypto keys, to date, the individual often bears the risk.
High-profile examples abound. Last month, $US97 million worth of digital coins were hacked from Japanese crypto exchange Liquid, about half of that total was converted to another crypto asset through decentralised exchange, allowing hackers to make off with the funds.
ANU’s Dr Ryan, who trades in cryptocurrency, said that last week she got an email from a platform she was using instructing her that her account would be closed in a several weeks time. She was instructed to trade her funds before to avoid losing the currency held by the exchange – in effect, a forced transaction.
“If that isn’t manipulating, I don’t know what it is,” she said.
The uneven playing field has been criticised by no less a figure than Jackson Palmer, co-creator of Dogecoin – the currency embraced by Elon Musk.
“Lose your savings account password? Your fault. Fall victim to a scam? Your fault. Billionaires manipulating markets? They’re geniuses.”
He said this is the “type of dangerous ‘free for all’ capitalism cryptocurrency was unfortunately designed to facilitate since its inception”.
Ryan says that when the blockchain technology underpinning cryptocurrency is used to free up a transaction between banking systems in a regulated way, “that will be a beautiful thing”.
“What I don’t think is good is when cryptocurrency is in the hands of pump and dump artists and the black market,” she said. “At the moment, it’s dominated by them.“
The problem globally is that “anarchy is still ruling the waves”.
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