How Are Crypto Regulations Taking Shape In New Zealand?

Wednesday, 16 February 2022, 4:32 pm
Press Release: Kalkine

Summary

• There is an ongoing debate on whether the crypto ecosystem can function efficiently without regulatory oversight.
• Existing safety features have also fallen short in ensuring the safety of people’s money in cryptocurrencies.
• Most central banks are on their way to launching their cryptocurrencies, called central bank digital currencies (CBDCs).

Cryptocurrencies have overthrown the existing notions of financial systems, garnering increased attention in recent years. The rise of cryptocurrencies has invited an inevitable argument around whether the crypto ecosystem can function efficiently without regulatory oversight.

The issue of regulatory control has seen diverging opinions, with some believing that it is an absolute necessity to safeguard people’s investments. Several experts believe that cryptocurrency regulation could become a central theme in 2022. Some think it is the perfect time for countries to implement regulatory action as the crypto market can run amok without any intervention.

New Zealand has been one of the friendly nations for cryptocurrency investors as the country has not yet adopted any major regulatory reforms. While speculations of stringent regulatory action are rife in some other countries, New Zealand stands out in this aspect.

Undoubtedly, the country has been experiencing a swift rise in investors’ interest in cryptocurrencies. However, it remains to be seen how long the country will retain its crypto-friendly reputation. New Zealand may soon have to embrace strict restrictions and increased control in the crypto space to stay in line with other nations.

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Existing crypto policies

The cryptocurrency ecosystem is made secure through an underlying blockchain technology that maintains a hassle-free ledger of all previous transactions, leaving little space for errors. Despite the highly secure technology backing cryptocurrency transactions, hackers and scamsters have managed to gain from existing loopholes. Consequently, New Zealand has been home to some crypto-related scams and dubious projects in the past.

One such example pushing in favour of regulatory control is the story of a crypto investment firm Cryptopia that lost millions of dollars in a hack back in 2019. It is speculated that NZ$27 million worth of crypto investments were stolen in the incident. That figure alone is enough to necessitate a regulatory action in the cryptocurrency space.

One of the existing policies in New Zealand include taxes on the income from crypto assets. The country’s Inland Revenue (IRD) has allowed crypto assets to be treated as a form of property. There is a tax applicable on the buying and selling of cryptocurrencies.

Related Article: How crypto assets are treated for tax purposes in NZ

The IRD treats crypto assets like gold, as both are incapable of producing any income while holding them but likely acquired for sale purposes. The Kiwi authorities may consider a revolution in its tax-based reforms in the cryptocurrency arena to ensure cautious investing.

Is CBDC the future of cryptocurrencies?

Like many of its contemporaries, the Reserve Bank of New Zealand (RBNZ) is considering developing its cryptocurrency - central bank digital currency (CBDC). The move is aimed to foster a more accommodating attitude towards cryptocurrencies and offer a more secure environment for financial transactions.

Putting it into perspective, CBDCs can be a quick and efficient way for central banks worldwide to regulate the crypto space. Meanwhile, it can help to prevent investors from scams and dubious ventures. Despite these benefits, traditional cryptocurrencies’ supporters view it as the government’s way of taking control away from the market into their own hands.

However, one cannot neglect that financial experts have long been advising the public to embrace safe and secure investments only. In fact, traders are often advised to opt for domestic trading platforms instead of international ones. Overall, the policies should be designed such that they are in the best interest of the people and the economic well-being of the nation.

Although regulatory control may dampen the enthusiasm around cryptos in the coming years, most market participants recognise the need for authoritative action in the field. While centralising the asset class may not be the perfect solution, some level of outside control might be beneficial to the entire ecosystem. Policies should be aimed at preventing suspicious activities instead of discouraging investors from participating in the market altogether.

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