Crypto, NFTs and Web3: Digital assets are hot in Australia, so how can businesses get on board?

The second instalment of the State of Origin series between New South Wales and Queensland drew a national audience of nearly 3 million. The on-field adverts were hard to miss during the clash, brought to viewers by the instantly recognisable KFC, next to a second, less familiar face.

Brisbane-based cryptocurrency exchange Swyftx had its logos and advertisements splashed across the grounds, including on-site vouchers for attendees at the ground and multiple commercials before, during and after the 80-minute match.

Three weeks ago, Swyftx surprised the market, announcing it would be merging with Superhero, the Aussie-owned and operated share trading startup.

The combined merger creates a new entity worth $1.5 billion, with around 800,000 customers, signalling the race to develop a financial “super app” was heating up, bringing in fierce competition from the big banks and other fintech startups.

A platform where users can trade crypto assets alongside traditional financial assets is an example of the mainstream adoption of digital assets and another step forward for the industry. So why are digital assets so hot, and how can Australian businesses jump on board?

Crypto’s rapid growth in Australia

While crypto has historically been seen as a speculative investment, an early 2022 survey conducted by Roy Morgan found that more than 1 million Australians own at least one type of cryptocurrency in their portfolio. With an average investment value of just over $20,000, crypto has become increasingly legitimised as an investment class over the past few years.

A December report by EY stated the crypto industry within Australia was valued at $2.1 billion and employed approximately 11,600 people. With proper regulation and continued growth, the report estimated the space could employ over 200,000 people and be worth $68.4 billion.

With average trading fees across Australian exchanges ranging between 0.5% and 4% and tens of billions of dollars of transaction volume, the crypto market has experienced massive growth, resulting in valuations of domestic crypto startups hitting eye-watering levels. In March, the Australian crypto platform Immutable scored a $3.5 billion valuation after raising $280 million. 

From NFTs to Web3, how to get into crypto the right way

NFTs (non-fungible tokens) made their international debut as digital artist Beeple sold his NFT, Everydays: The First 5000 Days, at auction house Christie’s in March 2021 for US$69 million ($100 million). Projects such as the Bored Ape Yacht Club (BAYC), Artblocks, Azuki, and Doodles all carve out niches within the space, growing swathes of followers along the way. 

With millions of new eyes on the space, corporations began scrambling for opportunities to get their brands in front of younger, more digitally savvy and engaged audiences. NFTs were purchased and created by international brands, including Nike, Visa, Taco Bell and Pizza Hut, rekindling engagement among younger audiences. Many saw this as an opportunity to develop digital versions of collectables this generation has been accustomed to via the likes of cereal boxes, “Happy Meals”, and chip packets since their formative years.

Meanwhile, Web3 was championed as the next iteration of the current internet “Web2”, where decentralisation and blockchain-based technologies are at the crux of everything. Web3 aims to reward community members and users with ownership via tokens, forming self-regulating DAOs (decentralised autonomous organisations).

Silicon Valley VCs were elated, rebranding existing apps and platforms as “Web3 projects”, with new use cases being created across the space daily. From funding community projects with proceeds from DeFi (Decentralised Finance) transactions through to “Move-to-Earn” platforms selling sneaker NFTs, allowing owners to generate crypto tokens every time they run, Web3’s ethos encourages startups and concepts to think outside the box in every way. 

Crypto’s regulatory landscape in Australia

During crypto’s rapid ascent to prominence, regulators mostly maintained their distance, allowing innovation to continue, but jumping in when they felt necessary. Hundreds of thousands of crypto investors were treated to letters from the ATO over the past two financial years, calling out the need for crypto taxes to be taken seriously.

The ATO has a relatively focused crypto regime compared to its global counterparts. They recently identified crypto as a key priority for the 2021-22 tax year, so it’s more important than ever that investors report their crypto taxes correctly and maintain proper records. The ATO generally treats crypto assets as property for tax purposes, and Australian crypto investors typically face capital gains tax (CGT) on their crypto investments and Income Tax, where additional income is derived from mining, staking, or interest payments.

With potentially thousands of transactions across multiple platforms, exchanges and crypto wallets, it’s no surprise that Swyftx and Superhero see the opportunities in streamlining everything into a financial super app. 

Crypto expectations for 2022-23

With crypto markets now plummeting, it follows a tumultuous period for the space, which has most recently seen crypto lender Celsius blocking all withdrawals. 

As crypto investors lick their wounds amidst macroeconomic concerns such as persistent inflation and central banks ratcheting up interest rates, what’s next for the asset class?

The “Ethereum Merge”, or ETH 2.0, has been in the works since the smart-contract blockchain was envisaged. The world’s second-largest crypto had been expected to migrate from the energy-intensive Proof of Work (PoW) mechanism to Proof of Stake (PoS) in 2023 but may pull off the technological feat over the next few months. Proponents of the move claim it could reignite usage of the blockchain, as transaction fees would be reduced, as well as become an ESG-play, as PoS will cut up to 98% of the blockchain’s energy usage.

Those searching for opportunities within the crypto space may be waiting a while, but in a sector that grew to over US$3 trillion ($4.35 trillion) in a little over a decade, time flies.