The corporate regulator has warned investors that using overseas crypto operators will not provide the same consumer protections that apply to local financial products, as interest in the new asset class rises.
Amid a rise in Aussies using unlicensed platforms for crypto asset trading and speculation, ASIC has issued a warning to would-be investors.
Citing reports from Australians who have used unlicensed platforms to trade crypto asset-related financial products, ASIC said to be wary of crypto-trading platforms that do not hold an AFS or AML licence.
“If an entity is unlicensed, you are taking a risk that you will not be afforded with the investor protections required of licensed providers,” ASIC warned.
While ASIC acknowledged that many of these platforms are based overseas, they said that many have taken or are taking steps to prevent Australian clients from accessing financial products that they are not licensed to offer in Australia.
Specifically, ASIC called out crypto-based options, futures, leveraged tokens and binary options.
The regulator said that a number of Australian consumers have experienced “significant” losses due to excessive leverage, platform outages, or unfair liquidations on unlicensed platforms.
“Dealing with licensed entities ensures that you have the benefit of specific obligations and investor protections imposed on these entities under the Corporations Act, that would not be applicable to an unlicensed provider,” ASIC reminded investors.
ASIC’s comments come at a time when a gulf between the popularity of speculative crypto-based financial products and services is on the rise.
Recent data released by Bybt has suggested that the open-interest market for bitcoin has doubled from a yearly low of $3.63 billion in June to a high of $7.85 billion in August.
Despite these trends, many regulators have yet to formally consider the role that crypto derivatives might play in the future of the market.
In many jurisdictions, including Australia, local regulators remain hesitant.
Calling attention to a lack of regulation around crypto custodianship in a Senate hearing earlier this month, Independent Reserve chief executive Adrian Przelozny warned that the absence of regulation could lead to real dangers.
“There will come a time where one of the participants makes a mistake, they don’t have the correct controls in place, and something bad happens,” he warned.
Mr Przelozny said the absence of clear rules in this space has forced customers to rely on exchanges and custodians to “do the right thing”.
However, to date, this lax approach has bred an ecosystem in which the gamification of high-risk crypto asset trades is commonplace.
Speaking to InvestorDaily sister brand nestegg earlier this year, associate professor of finance at Macquarie University Sean Foley drew attention to ways in which international crypto exchanges like Binance combine gamification with high-risk derivatives.
Investors are able to speculate on whether the price of bitcoin will go up or down at a fraction of what it would cost to buy low and sell high via a traditional spot exchange.
However, the potential risk is also much greater here. Much like contract-for-difference trading, it doesn’t take much for an investor to lose their entire investment.
These are exactly the type of financial instruments that have ASIC concerned, and Mr Foley said that investors should be wary of unrealistic expectations when considering them.
“I think with things like GameStop, you know, we’ve started to see a generation of traders who really are looking for assets that can turn $10,000 into a house deposit overnight,” Mr Foley said.