What you need to know about crypto strategies and rules

Cryptocurrency has come a long way in recent years. Where there was once just Bitcoin, the landscape is now populated by thousands of different crypto assets.

It's clearly no longer a landscape dominated by early adopters and crypto diehards either - all manner of Australians are dipping their toes in.

Research published by Finder in June last year revealed that one in four Aussies either owned, or were interested in owning, cryptocurrency. For those holding crypto, the average portfolio was worth $21,426.

Individuals aside, institutions are also getting on board, including the likes of AMP Super which announced last December that it had invested $27 million in Bitcoin.

The reality is that there are still question marks next to cryptocurrency in the minds of many Australians though, often in relation to the state of crypto regulations and its potential as an investment.

What are the crypto regulations in Australia?

As is often the case, regulation has moved at a slower pace than crypto adoption in Australia, so it's still an evolving space.

Much of the current regulatory focus is on exchanges, brokers and platforms that hold crypto assets on behalf of Aussie customers. This is through a lens of security and consumer protection.

As Vakul Talwar, head of Australia at Crypto.com explains, platforms are already required to meet certain obligations to operate in Australia.

"As a crypto exchange, we have to have AUSTRAC registration, we have to comply with the overall AFSL [Australian Financial Services Licence] regime and we're even members of AFCA [the Australian Financial Complaints Authority].

"So there's a lot already in place to ensure that we follow money laundering laws, consumer identification laws and even strict advertising guidelines."

Talwar says that one of the outstanding components of the crypto regulations jigsaw is adding it as an asset class within the AFSL regime.

"That's been the biggest piece that's been going on with government, and Treasury actually came out with a consultation paper on this last year."

"The Treasury approach is a good baseline. They've taken a pragmatic approach, basically saying that cryptocurrencies will be added as a new kind of classification in the AFSL realm. And if anybody wants to be involved in that, that's the classification they'll need to get an AFSL for."

How to invest in cryptocurrency in Australia

Whether it's Bitcoin, Ethereum, Tether or the latest meme coin, Australians looking to get a slice of the crypto pie have a couple of options when it comes to investing.

The first is using a cryptocurrency exchange or broker to buy it. In short, exchanges facilitate trades between buyers and sellers using real-time prices, while brokers typically sell crypto to users for a set price. Some platforms offer both.

Investors can also decide to transfer the assets they've purchased to a crypto wallet or have their exchange or brokerage platform hold onto those assets for them (known as a custodial model).

Alternatively, Australians have a growing number of cryptocurrency ETFs at their disposal which - just like other ETFs - are listed on exchanges like the ASX and Cboe.

While the way these funds are structured does differ from provider to provider, in essence, they aim to mirror the price of crypto, giving investors exposure without having to hold it themselves.

What are the best crypto investment strategies?

Like any asset class, there's no one-size-fits-all approach to crypto investing - it will come down to an individual's goals, investment timeframe, risk appetite and other factors.

One way to think about investing though is to assess the different ways that crypto can be used to generate wealth. After all, that could dictate the type of crypto assets someone holds.

"There are a few investor types," Talwar explains. "One is the growth investors who are just looking for growth-related appreciation of their assets.

These, for example, could be people who sees potential in Bitcoin appreciating in value. They might then invest a lump sum upfront, or in smaller chunks over time using dollar cost averaging to limit volatility.

"The other is yield-hungry investors who want to take advantage of things like staking and to leverage the yield and returns that come from that," Talwar says.

Simply put, staking is a way for holders of certain cryptocurrencies (e.g. Solana) to put their crypto to work in maintaining the integrity of the blockchain in exchange for rewards (usually more crypto).

Talwar says that some people choose to employ both growth and yield strategies, particularly those more familiar with cryptocurrency.

More broadly though, he says that the pursuit of diversification is one of the major factors driving people with existing multi-asset portfolios to add an allocation of cryptocurrency.

"There's a certain percentage of people who are just investing in crypto. But there are many who are invested across asset classes and who have stocks as well as crypto."

Again, there's no stock-standard approach to the share of a portfolio that should be in crypto - that's a matter of individual preference. As a general rule of thumb though, riskier investments are often given a smaller role.

For instance, in a traditional 60/40 portfolio of stocks and bonds, VanEck research suggests that a crypto allocation of up to 6% could be optimal, while an analysis from Blackrock made the case that a 1-2% allocation of Bitcoin would be reasonable.

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