From board rooms to bars, cryptocurrency has been one of the hottest topics of the past few years. The GameStop scandal in late January sparked global conversations about cryptocurrency and other forms of online investment. Meanwhile, the development of cryptocurrency has birthed a new universe of financial services, merging the world wide web with traditional forms of finance, banking and investment.
Cryptocurrency is a digital form of exchange that’s growing in popularity across the globe. El Salvador became the first country to authorise bitcoin as a legal tender, while in Australia alone, investors and traders have accumulated over seven billion dollars’ worth of digital currency.
With different digital currencies emerging all the time, the world of cryptocurrency is constantly evolving. Starting with a quick run-down of basic terms, here’s everything you need to know about the moving parts of cryptocurrency trading in Australia.
What is cryptocurrency?
Cryptocurrency is a form of exchange that is purely digital, enabling transactions between online users. The value of crypto ‘coins’ is determined by the demand and supply, production costs, competitions and regulatory and news developments. Crypto coins holders make money as the price and interest per coin increase. However, crypto coins aren’t equivalent to fiat money as they haven’t been recognised as legal tenders globally, and most of them aren’t backed by the government or a legal entity.
Unlike traditional currency, cryptocurrency’s network is decentralised. This means there is no central authority that manages or maintains the value of each crypto ‘coin’. Satoshi Nakamoto, the father of Bitcoin, believed future currencies should not be controlled by central governments or agencies.
Many people have started investing in cryptocurrency as they would in stocks or precious metals. Mark Core, an accountant at West Carr Harvey, says he has seen increased interest in cryptocurrency over the past two years.
“Particularly in my field of work, I’ve seen a lot more clients investing into cryptocurrency and adding this to their investment portfolios to complement any other investments they may have,” he tells upstart.
Many forms of cryptocurrency have emerged since its first initial launch in 2009 including Cardano, Ripple and Solana.
The first-ever cryptocurrency was Bitcoin (₿), and it is still the biggest form of crypto to date, accounting for around 46 percent of the total crypto market. Nakamoto outlined Bitcoin’s principles in his 2008 research and described the project as “an electronic payment system based on cryptographic proof instead of trust”. The cryptographic proof is then formulated into a list of transactions recorded in a program called blockchain.
Blockchain is an open distributed ledger that documents data records and transfers values across the internet. It allows cryptocurrency users to have a copy of their ledger and creates a unified transaction record. Every transaction made is logged in the software in real-time, and it simultaneously updates all copies of a blockchain, creating identical and accurate records. With blockchain, users can confirm transactions without needing a central clearing authority.
How does it work?
Similar to traditional bank services, crypto investing and trading start with people depositing their money into their accounts before they can exchange their funds for bitcoin and earn monthly interest. The biggest difference lies in crypto’s interest rate, which is not risk-averse as it often fluctuates depending on the supply and demand. However, cryptocurrency investors can sometimes earn interest that is upwards of 100 times what an average traditional savings account can make.
Cryptocurrency ‘coins’, or units, can be exchanged for traditional currency and sometimes goods and services, depending on the platform used and countries you’re trading in. Currently, there are over 5,000 cryptocurrency coins in circulation, each of them functions differently.
Trading in Australia
It is estimated that around one in five Australians have invested in cryptocurrency, with millennials leading the pack in purchasing frequency, opting to invest in crypto coins as opposed to property. When trading in Australia, crypto traders are subjected to capital gains tax as cryptocurrency falls under the same category as property and other similar assets.
There are several platforms used to trade cryptocurrency in Australia. According to Market Place Fairness, the top five cryptocurrency platforms to trade in Australia are:
An Australian-owned and operated trading platform that allows users to buy and sell over 280 cryptocurrency coins. The platform has some of the lowest trading fees in Australia and enables trading through both mobile and desktop platforms.
CoinSpot has access to over 310 cryptocurrency coins and provides instant transactions. Rather than using an external wallet where standard bank transaction fees might apply, CoinSpot charges one percent on all transactions made within the site. The platform is regulated by the Australian Transaction Reports and Analysis Centre (AUSTRAC).
3. Digital Surge Exchange
Digital Surge is an Australian-owned cryptocurrency trading platform with access to over 200 cryptocurrency coins. The platform is also registered with AUSTRAC and offers users the option to pay their bills using their crypto coins.
eToro is an online broker that offers investors access to a range of markets including cryptocurrency, trade stocks, exchange-traded funds (ETFs) and contract for differences (CFDs) by using just one account. This form of trading is known as ‘social trading’ and sets eToro apart from other cryptocurrency trading platforms in Australia.
According to Andrew Boyd, managing director of Finty, Binance is at the ‘heart of the crypto ecosystem’, having one of the largest ranges of cryptocurrency coins of all trading platforms. The platform targets intermediate investors who have preliminary knowledge of buying and selling cryptocurrency.
What makes cryptocurrency so attractive?
According to Finder’s annual cryptocurrency report, younger generations are dominating the growth of online currencies as they find investing in crypto much easier and has potentially higher returns. Twenty-five-year-old Madeline Kun currently uses CoinSpot to trade cryptocurrencies. She says accessibility is a significant factor in her exploration and investment into cryptocurrency.
“It’s an easier way to invest money compared to traditional stock investments. I definitely felt a lot less pressure with the user-friendly app,” she tells upstart.
Mark Core says accessibility and ease aren’t the only things that make cryptocurrency appealing to young people. He says the lack of minimum investment required is also one of the driving factors for most young people.
“Younger people are more conscious of their spending now and are looking at micro-investing platforms to try and grow their assets and reach whatever financial goals they may have,” he says.
“Unlike most trading platforms, there is often no minimum spend required to invest into cryptocurrency, so [people] who may not be confident to invest large sums of money can dabble $50, and not feel too much of a pinch.”
The pitfalls of cryptocurrency
Unlike traditional currency and trade, cryptocurrency is still fairly young. A significant weakness for cryptocurrency is the unpredictability of its stability in value. While some cryptocurrencies are valued higher compared to others, their value constantly fluctuates and can significantly drop at any moment. This often makes investing in cryptocurrency seen as highly speculative.
Core says it’s easy to get caught up in the crypto world given how rapid the market fluctuates. The best way to deal with its uncertainty though is to be aware of the potential risks, he says.
“I think it’s best to invest an amount you’re comfortable in losing … you need to be prepared because not everyone is going to have that golden investment.”
Kun is also aware of the volatile nature of the cryptocurrency market and attempts to counter it with research and careful investment.
“I use CoinStats to look into trends. I look at the trends over a period of time and discuss some of the cryptocurrencies with my brother, as he does a significant amount of research. I also compare the coins I already have with their current prices versus the prices I purchased them at,” she says.
Despite being a speculative investment, cryptocurrency continues to rise in prominence globally, especially among younger generations. And while the future of crypto remains a question mark, it’s evident that this digital currency is here to stay as experts are estimating cryptocurrency investments to over-take traditional finance by 2029.
Photo: Bitcoin crypto currency coin on gpu graphic card chip by Jernej Furman available HERE and used under Creative Commons Attribution. The image has not been modified.
Article: Gemma Scerri is a Masters of Communications student with an undergraduate degree in International Relations. You can follow her on Twitter @gemmascerri.