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Home Articles Opinion

Could Embracing Crypto Trigger Systemic Risk in Australia’s Financial System?

15 July 2025
in Opinion, Policy
Reading Time: 10 mins read
105 3
Could Embracing Crypto Trigger Systemic Risk in Australia’s Financial System?

Source: DeCrypt

Contents

Toggle
  • Australia’s Crypto Market Scene
  • How Crypto Could Benefit Australia’s Financial System
    • Innovation and Inclusion
    • Institutional Opportunities
    • Tech Leadership in the Region
    • Regulatory Momentum
  • Can Crypto Threaten Systemic Stability in Australia?
    • Bank/Crypto Linkages
    • Stablecoin Risks
    • Shadow Finance
    • Cybersecurity and Fraud
  • Global Precedents and Lessons
    • FTX Fallout
    • US Banking Exposure: Signature and Silvergate Banks
    • UK and EU Approach: Regulatory Sandboxing and Ring-Fencing
    • What Can Australia Learn?
  • Could Crypto Trigger Systemic Risk in Australia’s Financial System?

Jim Chalmers, Australia’s current Treasurer and a key figure during the Global Financial Crisis (GFC), has issued a stark warning: “If crypto is allowed to play a prominent role in our financial system, we will be counting entirely on luck to avoid a future disaster.” 

His comments reflect growing concern that the integration of cryptocurrencies into the mainstream financial system, especially under shifting global policies like those expected from a second Trump presidency, could expose Australia to the systemic risks it avoided during the GFC. 

With rising crypto collateralization, expanding institutional exposure, and opaque stablecoin structures, is Australia’s financial system sleepwalking into a minefield? 

In this article, we’ll explore both sides of the equation: can crypto truly deliver the innovation it promises, or is Australia risking the kind of financial collapse Chalmers has warned about?

Australia’s Crypto Market Scene

Cryptocurrency has become increasingly popular in Australia, with an increasing number of people buying and using digital assets, such as Bitcoin, Ethereum, and stablecoins. A growing number of Australians, particularly younger people, are showing strong interest in crypto.  

According to a 2024 survey by Swyftx, 32% of Gen Z Australians own crypto, closely followed by Millennials at 35%, positioning these groups as the most crypto-engaged generations in the country. 

In addition, over 50% of Australians aged 25–34 reported owning crypto assets, making them the largest demographic of crypto holders. A total of 3.9 million Australians currently hold crypto, while 39% agree that crypto will play a central role in the Australian economy.

In addition, over 50% of Australians aged 25–34 reported owning crypto assets, making them the largest demographic of crypto holders. A total of 3.9 million Australians currently hold crypto, while 39% agree that crypto will play a central role in the Australian economy.
Swyftx crypt survey in Australia.
Swyftx crypt survey in Australia. Source: Swyftx

The Australian government is actively working to establish a comprehensive regulatory framework for cryptocurrencies:

  • Token Mapping Consultation: In February 2023, the Australian Treasury released a consultation paper on token mapping, aiming to classify crypto assets and determine how existing regulations apply to them. This initiative seeks to inform future policy development and ensure consumer protection.
  • ASIC Oversight: The Australian Securities and Investments Commission (ASIC) has proposed that crypto platform providers obtain an Australian Financial Services Licence. This move is part of a broader effort to regulate the crypto sector and enhance investor confidence.

These measures reflect Australia’s commitment to fostering innovation in the crypto space while implementing safeguards to mitigate potential risks associated with digital assets.

How Crypto Could Benefit Australia’s Financial System

Integrating crypto and blockchain technology could bring major improvements to Australia’s financial system.

How Crypto Could Benefit Australia’s Financial System

  • Innovation and Inclusion
  • Institutional Opportunities
  • Tech Leadership in the Region
  • Regulatory Momentum

Innovation and Inclusion

One of the biggest promises of crypto is faster, cheaper, and more secure payments. Traditional banking systems can be slow and expensive, especially for international transfers. Blockchain-based systems can settle payments almost instantly and with lower fees.

Smart contracts could also alter the way financial agreements operate. They automate processes like loan repayments or insurance payouts, reducing the need for middlemen and making transactions more transparent.

Crypto also supports financial inclusion. People who don’t have access to traditional banks (especially in remote or underserved areas) can still use crypto wallets to save, send, or invest money.

Institutional Opportunities

Crypto isn’t just for retail investors anymore. Big institutions are getting involved too.

  • Crypto ETFs (Exchange-Traded Funds) allow everyday Australians to invest in crypto without needing to buy or store digital coins themselves.
  • Tokenized assets, like real estate or company shares on the blockchain, make it easier to trade and divide large assets into smaller, more accessible pieces.
  • Blockchain-based settlement systems are being tested to make large-scale banking transactions faster and more efficient.

These tools could modernize Australia’s financial markets and attract global investment.

Tech Leadership in the Region

Australia has a chance to become a fintech leader in the Asia-Pacific region by embracing digital finance. We already have a strong tech sector and a reputation for smart regulation. By supporting blockchain innovation, Australia can help shape the future of finance while creating jobs and boosting the economy.

Regulatory Momentum

The government isn’t standing still. Australia is taking steps to build a clear and safe regulatory framework:

  • The Digital Assets (Market Regulation) Bill, introduced in 2023 by Senator Andrew Bragg, proposes rules for licensing crypto exchanges and managing stablecoins.
  • The Reserve Bank of Australia (RBA) has also completed a pilot program to test a central bank digital currency (CBDC). This digital Aussie dollar could improve wholesale transactions and government payments in the future.

These moves show that Australia is committed to striking a balance between innovation and safety.

Can Crypto Threaten Systemic Stability in Australia?

While crypto has the potential to bring innovation, it also comes with significant risks that could affect Australia’s financial stability. If not carefully regulated, the integration of crypto into the financial system could expose the economy to several dangers.

How Crypto Could Threaten Systemic Stability

  • Bank/Crypto Linkages
  • Stablecoin Risks
  • Shadow Finance
  • Cybersecurity and Fraud
  • Bank/Crypto Linkages

One of the biggest risks is the potential for banks and cryptocurrencies to become intertwined. If banks start holding or using crypto as collateral for loans, a sudden crash in crypto prices could quickly spread across the banking system.

For example, if a bank has significant crypto holdings and the price of Bitcoin or other digital assets falls sharply, it could lead to balance sheet problems. This could force the bank to sell off other assets or even need a bailout, causing financial instability that affects the broader economy. This risk is especially concerning, as crypto prices can be highly volatile, making it more challenging for banks to manage their exposure.

  • Stablecoin Risks

Stablecoins, typically pegged to the US dollar, are increasingly being used for payments and settlements. However, if a stablecoin loses its peg (for example, if it no longer stays equal to one dollar), it could create panic.

If large numbers of people attempt to cash out or convert their stablecoins simultaneously, the price could collapse, leading to widespread loss of confidence in cryptocurrency. This could spill over into the traditional financial system if these stablecoins are used for day-to-day transactions or as collateral by financial institutions.

  • Shadow Finance

DeFi refers to financial activities that happen outside of traditional financial institutions, like lending, borrowing, and trading, but on decentralized platforms. While DeFi promises financial freedom and lower costs, it also acts as a parallel, unregulated financial system.

Unlike banks, which are heavily regulated, DeFi platforms often lack clear oversight or accountability. This could allow risky practices to flourish, with no clear way to protect investors or prevent major failures. If a major DeFi platform collapses or becomes insolvent, it could trigger a domino effect, harming investors and potentially causing broader financial stress.

  • Cybersecurity and Fraud

The digital nature of crypto makes it vulnerable to hacks, scams, and other security threats. Hacks on crypto exchanges or smart contract platforms could result in massive financial losses, potentially affecting investors and institutions.

Additionally, scams are prevalent in the cryptocurrency world, where malicious actors exploit inexperienced users with fake projects or Ponzi schemes. Smart contract bugs, errors in the code that run crypto platforms, can also result in unexpected losses. If trust in crypto systems is eroded due to these incidents, it could cause panic and weaken confidence in the broader financial system, potentially leading to financial instability.

Global Precedents and Lessons

The global integration of crypto into financial systems has caused significant disruptions in several countries, offering lessons on the risks of crypto and the consequences of mismanagement.

FTX Fallout

In late 2022, FTX, once a major cryptocurrency exchange, collapsed, affecting both individual and institutional investors. The scandal exposed the dangers of poorly regulated crypto exchanges, with FTX mismanaging funds and engaging in fraud, resulting in losses. The fallout showed how crypto risks can spread across traditional financial institutions.

US Banking Exposure: Signature and Silvergate Banks

The 2023 collapse of Signature Bank and Silvergate Bank underscored the risks associated with banks heavily invested in crypto. As crypto values declined and regulatory pressure intensified, these banks faced massive losses, ultimately leading to their shutdowns. This raised concerns about the stability of banks closely tied to the volatile crypto market.

UK and EU Approach: Regulatory Sandboxing and Ring-Fencing

In contrast, the UK and EU have adopted a more cautious approach with sandboxing and ring-fencing. Sandboxing allows crypto firms to operate in a controlled environment for testing products while being regulated, whereas ring-fencing separates crypto from traditional banking to mitigate broader financial risks. 

This approach encourages innovation while protecting the broader economy from crypto-related disruptions.

What Can Australia Learn?

These global examples show that while crypto holds significant potential, it also carries substantial risks. For Australia, the key lessons are:

  • Institutional Exposure: If financial institutions take on too much crypto exposure, they risk amplifying losses across the economy in the event of a crash or failure.
  • Regulation is Key: Like the UK and EU, Australia could adopt regulatory approaches that allow for innovation while providing safeguards to limit risks to the broader financial system.
  • Need for Transparency and Accountability: FTX’s collapse and the banking troubles in the US highlight the dangers of insufficient regulation and a lack of transparency. Regulators need to ensure that crypto firms are held accountable and that investors are protected from fraud and mismanagement.

Could Crypto Trigger Systemic Risk in Australia’s Financial System?

The integration of crypto into Australia’s financial system carries both potential benefits and risks. On the one hand, crypto can introduce innovation, faster payments, and greater financial inclusion. It could also elevate Australia’s position as a leader in fintech. However, if adopted carelessly, without proper regulation and oversight, crypto could amplify systemic risk.

The most pressing concern is the potential for crypto-related price volatility to disrupt traditional financial institutions. Banks holding or collateralizing crypto could face devastating losses in the event of a market crash, with stablecoins and DeFi platforms also introducing unpredictable risks to the financial ecosystem. These could have a domino effect, triggering broader financial instability.

But it’s not all doom and gloom. If safeguards are put in place, such as clear regulatory frameworks and stringent oversight on crypto exchanges, tokenized assets, and stablecoins, the risks could be mitigated. With responsible design, crypto has the potential to enhance Australia’s financial resilience and drive innovation in ways that traditional systems cannot.

 

Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence. 

 

If you would like to read more articles like this, visit DeFi Planet and follow us on Twitter, LinkedIn, Facebook, Instagram, and CoinMarketCap Community.

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Olayinka Sodiq

Olayinka Sodiq

Olayinka Sodiq is a seasoned crypto and blockchain writer with over 5 years experience in the fintech industry. With a deep passion for decentralized technology, Olayinka crafts insightful and engaging content that demystifies complex blockchain concepts for a global audience. His work has been featured in leading publications (Business Insider Africa, Tradingbeasts.com, and The Trading Bible), where he is known for blending technical expertise with a clear, accessible writing style. Olayinka holds a degree in English and is a sought-after speaker at blockchain conferences worldwide

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