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The Legal Status of Cryptocurrencies in Australia

When Bitcoin's whitepaper emerged in 2008, few could have anticipated the legal complexity that would follow. Today, thousands of cryptographic tokens circulate globally, each with distinct characteristics, use cases, and - crucially - regulatory treatment.

The question of how existing legal frameworks apply to these novel instruments remains contested territory, yet the regulatory answer increasingly shapes which business models survive and which face enforcement action.

TLDR:

Cryptocurrency exchanges must register with AUSTRAC under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the "AML/CTF Act") - operating without registration may result in a criminal offence

Tokens that function as financial products potentially trigger Financial Services licensing requirements under the Corporations Act 2001 (Cth), regardless of how they're marketed or what technology underlies them

The ATO treats cryptocurrency as property for CGT purposes - every disposal, including crypto-to-crypto trades, is potentially a taxable event. Daimon Legal considers this a contestable area of law however there are significant risks of adverse litigation should you decide to test the ATO.

Australian courts will likely view cryptocurrency as property capable of being held on trust, subject to freezing orders, and recoverable through proprietary remedies.

Start compliance now: the regulatory direction is clear even where specific rules remain unsettled

The Australian Tax Office moved early, determining in Taxation Determination TD 2014/26 that Bitcoin constitutes property for tax purposes.¹ Yet this characterisation, while administratively convenient, leaves fundamental jurisprudential questions unresolved. The Law Commission of England and Wales has proposed a new category of personal property - "digital objects" - to accommodate assets that fit neither traditional "things in possession" nor "things in action". Whether Australian law will follow this path, or chart its own course, remains to be seen.

Daimon Legal advises participants across the cryptocurrency ecosystem - from exchanges and custodians to DeFi protocols, DAOs, token issuers and institutional investors - on the legal frameworks that govern their operations.

How Are Cryptocurrencies Regulated in Australia?

Australia's regulatory approach to cryptocurrency has evolved in piecemeal fashion, with multiple agencies asserting jurisdiction over different aspects of digital asset activity. The result is a layered compliance environment that demands careful navigation.

AUSTRAC registration is mandatory for digital currency exchange providers under Part 6A of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).² This imposes substantial anti-money laundering and counter-terrorism financing obligations including customer identification (KYC), ongoing customer due diligence, transaction monitoring, and suspicious matter reporting. The penalties for non-compliance are severe: operating an unregistered digital currency exchange service is a criminal offence carrying up to two years imprisonment and significant financial penalties.³

What You Need to Know: AUSTRAC registration is not optional and not merely administrative. If your business exchanges digital currency for fiat currency, or exchanges one digital currency for another, you are a "digital currency exchange provider" under the AML/CTF Act. Operating without registration exposes directors and officers to personal criminal liability. The registration process itself requires demonstrating adequate AML/CTF systems - you cannot simply register and figure out compliance later.

ASIC has asserted jurisdiction over tokens that exhibit characteristics of financial products, publishing Information Sheet 225 (INFO 225) to clarify when crypto assets fall within the Corporations Act 2001 (Cth) regulatory perimeter.⁴ A crypto asset may constitute a financial product if it is a managed investment scheme, a share, a derivative, or a non-cash payment facility - classifications that turn on the economic substance of the arrangement rather than its technological form.⁵

The Treasury's 2023 consultation paper on "token mapping" represented an attempt to impose taxonomic order on this diverse asset class, distinguishing between payment tokens, utility tokens, and tokens with financial product characteristics. The subsequent legislative proposals would, if enacted, establish a licensing regime for cryptocurrency exchanges and custody providers that extends beyond current AML/CTF requirements to encompass consumer protection, custody standards, and operational resilience.

The regulatory landscape continues to shift. Organisations operating in this space must monitor developments closely and develop a proactive regulatory strategy, as yesterday's compliant business model may face new requirements tomorrow.

Can Cryptocurrency Be Property?

This question, seemingly academic, has significant practical implications. If cryptocurrency constitutes property, it can be held on trust, form the subject of security interests, pass on death, and be the subject of proprietary remedies in insolvency. If it does not, these fundamental legal mechanisms may not apply.

Australian courts have generally accepted that cryptocurrency can constitute property, though comprehensive judicial treatment remains limited. In Ruscoe v Cryptopia Ltd (in liq) [2020] NZHC 728 - a New Zealand decision likely to influence Australian jurisprudence - the court held that cryptocurrencies are property capable of forming the subject matter of a trust. The LCEW's Digital Assets consultation paper presents a compelling case for recognising cryptocurrencies as a novel form of personal property - neither purely possessory nor purely contractual - that exists independently of any legal system and exhibits the quality of "rivalrousness" that distinguishes property from mere information.

What You Need to Know: The property characterisation of cryptocurrency matters beyond academic debate. If your business holds cryptocurrency on behalf of clients, the question of whether those assets are held on trust - and therefore protected from your creditors in insolvency - turns on property law principles. Similarly, if you're seeking to recover misappropriated crypto assets, proprietary remedies (which may allow you to trace and recover specific assets) depend on cryptocurrency constituting property. Structure your arrangements with these principles in mind.

Daimon Legal tracks these jurisprudential developments and advises clients on structuring arrangements that account for remaining uncertainties in the property characterisation of digital assets.

Token Launches and Offerings

Launching a token in Australia demands careful navigation of securities law. ASIC's position, articulated in INFO 225, is unequivocal: tokens that exhibit characteristics of financial products - managed investment schemes, securities, derivatives - require appropriate licensing and disclosure regardless of the technology used to issue or transfer them.⁶

The analysis turns on substance over form. A token marketed as "utility" but purchased primarily for speculative gain may nonetheless constitute a managed investment scheme if holders reasonably expect returns derived predominantly from the efforts of the issuer or promoter.⁷ Distribution mechanisms, marketing materials, and secondary market dynamics all inform the characterisation. Initial coin offerings, initial exchange offerings, and newer models like initial DEX offerings each present distinct regulatory considerations.

ASIC has demonstrated willingness to pursue enforcement action against token issuers who fail to comply with financial services obligations. In 2018, ASIC obtained Federal Court orders against an ICO operator who raised over $50 million without an Australian financial services licence, ultimately resulting in the company's liquidation.

What You Need to Know: The "utility token" label provides no regulatory protection if the economic reality differs. ASIC looks at how tokens are actually marketed, who purchases them and why, and whether purchasers have a reasonable expectation of profit derived from the efforts of others. If you're launching a token, obtain proper legal analysis of its regulatory characterisation before going to market - retrofitting compliance after an offering has commenced is substantially more difficult and expensive.

Our lawyers analyse token economics, distribution structures, and marketing approaches to determine regulatory treatment and structure offerings that achieve commercial objectives within legal boundaries.

Exchange and Platform Operations

Operating a cryptocurrency exchange or trading platform in Australia triggers multiple regulatory obligations across different agencies. The compliance burden is substantial, but so are the consequences of non-compliance.

AUSTRAC registration is mandatory for businesses that exchange cryptocurrency for fiat currency or other cryptocurrencies.⁸ This brings the full weight of the AML/CTF regime: exchanges must implement and maintain an AML/CTF program, conduct customer due diligence, monitor transactions for suspicious activity, submit suspicious matter reports, and maintain records for seven years.⁹

Where an exchange facilitates trading in tokens that constitute financial products, ASIC licensing requirements may apply. This includes the obligation to hold an Australian financial services licence (AFSL), comply with conduct obligations, and meet financial resource requirements. ASIC's Consultation Paper 343 foreshadowed enhanced regulation of crypto asset secondary service providers, signalling the direction of regulatory travel.

Compliance extends beyond registration to operational systems: customer due diligence procedures, transaction monitoring programs, and record-keeping frameworks must satisfy regulatory expectations. When regulators issue information requests or commence investigations, how an organisation has documented its compliance efforts often determines outcomes.

Daimon Legal assists exchanges and platforms establishing compliant operations, conducting compliance reviews, and responding to regulatory inquiries.

Cryptocurrency Disputes and Recovery

The pseudonymous nature of blockchain transactions creates distinctive challenges when disputes arise. Tracing assets through multiple wallets, establishing the identity of counterparties, and enforcing judgments against parties in foreign jurisdictions all require specialist expertise.

Fraud, exchange failures, and smart contract exploits have generated substantial litigation in recent years. Australian courts have demonstrated willingness to apply freezing orders and other urgent remedies to cryptocurrency assets. In Fetch.AI Ltd v Persons Unknown [2021] and similar cases internationally, courts have granted Mareva injunctions and Norwich Pharmacal orders to freeze crypto assets and compel exchanges to disclose customer information.

What You Need to Know: Time is critical in cryptocurrency disputes. Assets can be moved within minutes, often across multiple blockchains and through mixing services designed to obscure their trail. If you discover theft or fraud involving cryptocurrency, engage specialist lawyers and blockchain forensics analysts immediately. Urgent court applications - including ex parte freezing orders and disclosure orders against exchanges - may be essential to preserve any prospect of recovery.

We work with industry experts and auditors to trace assets and build cases suitable for litigation or negotiated resolution.

Tax Treatment of Cryptocurrency

The ATO treats cryptocurrency as a CGT asset under Taxation Determination TD 2014/26, with disposals - including exchanges between different cryptocurrencies - potentially triggering capital gains tax liability.¹⁰ This means every trade, swap, or exchange is a CGT event requiring calculation of cost base and capital proceeds. Trading profits may be assessable as ordinary income where the taxpayer is carrying on a business of trading. Staking rewards, airdrops, and DeFi yields each present distinct characterisation questions.

The ATO has invested significantly in data-matching capabilities, receiving transaction information from Australian exchanges under information-gathering powers and participating in international information-sharing arrangements including the Joint Chiefs of Global Tax Enforcement (J5).¹¹ Taxpayers with unreported cryptocurrency holdings face increasing detection risk as these capabilities mature.

Personal use exemptions exist but are narrow: only cryptocurrency acquired and used within a short period for direct acquisition of goods or services for personal use or consumption may qualify, and only where the cost is under $10,000.¹² Most cryptocurrency transactions will not satisfy these conditions.

Daimon Legal strongly encourages you to arrange specialist tax advice regarding cryptocurrency tax positions and can introduce clients to accountants specialising in the field.

DeFi, DAOs, and Emerging Structures

Decentralised finance protocols and decentralised autonomous organisations present novel regulatory challenges that existing frameworks struggle to accommodate. When there is no central issuer, no identifiable promoter, and governance distributed across anonymous token holders, traditional regulatory categories strain.

Yet regulators have signalled that decentralisation does not automatically confer regulatory immunity. ASIC has noted that even "decentralised" protocols may involve identifiable persons performing regulated functions. The question becomes who - if anyone - bears regulatory responsibility, and that analysis often reveals greater centralisation than surface appearances suggest.

For organisations interacting with DeFi protocols - whether as liquidity providers, protocol developers, or institutional users - understanding the residual legal risks is essential. Smart contract exploits may leave no counterparty to sue. Regulatory characterisation of DeFi tokens remains uncertain. Cross-border enforcement presents practical challenges that may leave victims without effective remedies.

Daimon Legal helps clients navigate these emerging structures by analysing regulatory exposure and structuring arrangements to manage identified risks. Our extensive global network of industry experts can step in to provide assistance where most law firms would falter.

Cryptocurrency Compliance Checklist for Australian Organisations

The following checklist provides a practical starting point for organisations seeking to assess and strengthen their cryptocurrency compliance posture. It is not exhaustive, but covers the foundational elements most organisations should address.

AUSTRAC Registration and AML/CTF Compliance

Determine whether your business activities constitute "digital currency exchange" services under the AML/CTF Act
Complete AUSTRAC registration as a digital currency exchange provider if required
Develop and implement a compliant AML/CTF program covering Parts A (customer identification) and B (ongoing due diligence)
Establish customer identification and verification procedures meeting "Know Your Customer" requirements
Implement transaction monitoring systems capable of detecting suspicious activity patterns
Create suspicious matter reporting procedures and train staff on reporting obligations
Establish record-keeping systems meeting seven-year retention requirements
Appoint an AML/CTF Compliance Officer with appropriate authority and resources
Conduct regular independent reviews of AML/CTF program effectiveness

ASIC and Financial Services Compliance

Assess whether any tokens traded, issued, or held constitute "financial products" under the Corporations Act
Obtain legal advice on whether Australian financial services licence (AFSL) obligations apply
Review INFO 225 guidance on crypto asset characterisation and apply to your specific circumstances
If operating a trading platform, assess whether market operator licensing requirements apply
Implement appropriate disclosure and conduct obligations for any financial product dealings
Monitor ASIC regulatory developments and consultation papers affecting crypto assets

Tax Compliance

Implement systems to track the cost base of all cryptocurrency acquisitions
Maintain records of every disposal, exchange, and transfer for CGT purposes
Assess whether trading activity rises to the level of carrying on a business (ordinary income treatment)
Document the tax treatment of staking rewards, airdrops, hard forks, and DeFi yields
Review eligibility for personal use exemption where applicable (limited to under $10,000)
Prepare for ATO data-matching by ensuring reported positions align with exchange records

Custody and Security

Implement segregation between client assets and operational assets
Document custody arrangements and communicate clearly to clients whether assets are held on trust
Establish security protocols for private key management including multi-signature requirements
Develop incident response procedures for security breaches or unauthorised access
Obtain appropriate insurance coverage for custodied assets where available
Conduct regular security audits by qualified third parties

Governance and Risk Management

Designate internal ownership and accountability for cryptocurrency compliance
Establish board or senior management oversight of cryptocurrency operations and compliance
Implement policies for cryptocurrency procurement, trading, and disposal
Create documentation standards for regulatory inquiries and audits
Develop business continuity plans addressing cryptocurrency-specific risks
Monitor regulatory developments across AUSTRAC, ASIC, ATO, and Treasury

Token Launches (if applicable)

Obtain legal analysis of token characterisation before any offering
Assess whether the token constitutes a managed investment scheme, security, derivative, or non-cash payment facility
Review marketing materials for consistency with regulatory characterisation
Implement appropriate disclosure documents if financial product obligations apply
Consider foreign regulatory implications if tokens may be acquired by overseas persons
Engage specialist legal counsel before proceeding with any public token offering

How Daimon Legal Can Help

Navigating cryptocurrency regulation requires more than general legal knowledge - it demands lawyers who understand both the technology and the specific regulatory regimes that govern digital asset activity in Australia. Daimon Legal provides practical, commercially-focused advice across the full spectrum of cryptocurrency legal challenges.

AUSTRAC Registration and AML/CTF Compliance We guide digital currency exchange providers through AML/CTF programs designed to respond to regulatory requirements while remaining practical. This includes drafting AML/CTF programs, establishing customer identification procedures and implementing transaction monitoring frameworks.

Token Characterisation and Offering Structuring We can help analyse token economics against ASIC's INFO 225 framework to determine whether proposed tokens are likely to constitute financial products, and structure offerings to achieve commercial objectives within regulatory boundaries.

Exchange and Platform Establishment For organisations establishing cryptocurrency exchanges or trading platforms, we provide end-to-end regulatory support - from initial structuring advice through AUSTRAC registration to ASIC engagement where financial products are involved. We help design compliance frameworks that scale with business growth.

Regulatory Response and Enforcement Defence When AUSTRAC issues compliance assessment notices, ASIC commences investigations, or the ATO audits cryptocurrency positions, we provide rapid response support. This includes regulatory liaison, document production management, interview preparation, and - where necessary - contested hearing representation.

Cryptocurrency Disputes and Asset Recovery We can represent clients in disputes arising from cryptocurrency fraud, smart contract exploits, and commercial disagreements. We have access to blockchain forensics specialists and can trace assets, obtain freezing orders where practicable, and pursue recovery through litigation or negotiated settlement.

Custody and Trust Arrangements For organisations holding cryptocurrency on behalf of clients, we advise on custody structuring, trust documentation, and regulatory requirements. Proper structuring protects client assets and limits the custodian's regulatory exposure.

Corporate Transactions Involving Crypto Assets We advise on mergers, acquisitions, and investments involving cryptocurrency businesses - including regulatory due diligence, transaction structuring, and post-completion compliance integration.

For a confidential discussion about your cryptocurrency legal requirements, contact Daimon Legal.

The information on this page is general in nature and does not constitute legal advice. Please review our Legal Disclaimer for important information about the limitations of this content and the terms governing your use of this website.

Footnotes

Australian Taxation Office, Taxation Determination TD 2014/26: Income tax: is bitcoin a 'CGT asset' for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997? (2014), https://www.ato.gov.au/law/view/document?docid=TXD/TD201426/NAT/ATO/00001. ↩
Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) pt 6A, https://www.legislation.gov.au/C2006A00169/latest/text. ↩
Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) s 76A - providing a digital currency exchange service while unregistered is an offence punishable by imprisonment for 2 years and/or 500 penalty units. ↩
Australian Securities and Investments Commission, Information Sheet 225: Crypto-assets (INFO 225), https://asic.gov.au/regulatory-resources/digital-transformation/crypto-assets/. ↩
Corporations Act 2001 (Cth) s 764A (definition of 'financial product'), https://www.legislation.gov.au/C2001A00386/latest/text. ↩
ASIC INFO 225, When a crypto-asset is a financial product, https://asic.gov.au/regulatory-resources/digital-transformation/crypto-assets/. ↩
Corporations Act 2001 (Cth) s 9 (definition of 'managed investment scheme'), applying the test from Australian Securities and Investments Commission v Chameleon Mining NL (2012) 88 ACSR 268. ↩
Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) s 6 (definition of 'digital currency exchange provider'); s 76(1) (requirement to register). ↩
Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1), Chapter 8 (AML/CTF programs for DCE providers), https://www.legislation.gov.au/F2007L01000/latest/text. ↩
Australian Taxation Office, Taxation Determination TD 2014/26 and Tax treatment of crypto assets, https://www.ato.gov.au/individuals-and-families/investments-and-assets/crypto-asset-investments. ↩
The Joint Chiefs of Global Tax Enforcement (J5) comprises tax authorities from Australia, Canada, the Netherlands, the United Kingdom, and the United States, cooperating on cryptocurrency tax enforcement. ↩
Australian Taxation Office, Personal use asset exemption for crypto, confirming the $10,000 threshold under Income Tax Assessment Act 1997 (Cth) s 118-10. ↩

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