Yesterday the Parliament’s Finance and Expenditure Committee announced an inquiry into the nature, impact and risk of cryptocurrencies.

The committee will examine how cryptocurrencies are created and traded – including the environmental impact of crypto coin mining and consult with some of the country’s leading experts in the cryptocurrency field. The inquiry is timely as governments globally have been taken by surprise by the growing popularity of cryptocurrencies. 

At present, it’s an unregulated market – with a buyer beware proviso – although purchasing cryptocurrency on a New Zealand based trading platform offers a minimum level of protection. 

The only thing controlled by regulators is that all New Zealand based crypto trading platforms must be registered on the financial service providers register and belong to a dispute resolution scheme.

The repeated wisdom seems to be – “only invest what you can afford to lose”.

Still, forward-thinking businesses are increasingly incorporating crypto as a payment system. 

Last year PayPal allowed users in the US to buy and sell in four cryptocurrencies, Microsoft accepts Bitcoin payments for an array of services, Starbucks customers can use an app to pay for drinks and goods at the coffee chain with converted Bitcoin and travellers can book hotels using more than 30 different cryptocurrencies with travel giant Expedia.

Closer to home at Auckland restaurant Oyster and Chop you can pay for your meal using Bitcoin.

Regulators across the Tasman have taken a more enlightened view of crypto.

Australia’s Financial Services Minister Jane Hume acknowledged in May that cryptocurrencies will inevitably grow as an asset class and that the Australian government won’t stand in the way of crypto traders, but warned investors of the risks.

“If you want to invest in Dogecoin, I won’t stand in your way. Personal opportunity and personal responsibility are two sides of the same coin.”

The UK government hasn’t been as accommodating – its Financial Conduct Authority (FCA) recently banned crypto derivatives for retail investors, citing the currency’s volatility, risk and the overall lack of understanding by customers.

Protecting investors was also uppermost in the mind of US regulators with new Securities and Exchange Commission (SEC) Chairman Gary Gensler stating that – “As we think about enforcement, to me, the idea is pretty simple: We need rules of the road and a cop on the beat to protect everyday investors and achieve our… mission.”

President Biden has given additional resources to the IRS to address the growth of crypto-assets, although hedge funds and big banks are treating Bitcoin as just another asset class, and many making millions of dollars.

China has cracked down on both mining and the use of cryptocurrencies and earlier this month in Switzerland the Basel Committee on Banking Supervision raised an interesting proposition that wasn’t greeted warmly by bankers, suggesting that banks who hold cryptocurrency assets set aside enough capital to cover all losses arising from cryptocurrency.

Crypto NZ

In 2017 then Minister of Revenue Stuart Nash identified cryptocurrencies as an area of interest for the then-new government. Describing blockchain technology such as Bitcoin and other decentralised technologies as “disruptive”.

“It’s inevitable that our tax system will need adjustments to accommodate these new business models, however, they evolve. If we don’t evolve at the same rate in real-time, the potential cost could be huge.”

The Reserve Bank however was taking a wait and see approach – comparing crypto’s impact to that of the infamous Snapper transport card – stating in 2017 that – “Like Snapper crypto-currency schemes are neither systemically important nor materially important for financial efficiency and therefore have not yet been brought into the Reserve Bank’s regulatory ambit.”

Four years on cryptocurrencies are gaining in mainstream popularity here with a survey of 2000 people undertaken on behalf of NZ’s Financial Services Council finding that one in five (21 per cent) kiwis are investing in or have previously invested in cryptocurrencies – an increase of 7 per cent since March 2020.

In March KiwiSaver provider NZ Funds began investing in cryptocurrency and observers have noticed that there has been a recent trend of property investors selling part of their portfolio and shifting it into crypto. 

But it’s fair to say the financial community is divided over the currency.

Mike Taylor, chief executive of fund manager and KiwiSaver provider PIE Funds told the Herald that he likens it to gambling. 

“I think it is a Ponzi scheme that relies on the bigger fool theory to work. Theoretically, a cryptocurrency could work if there were only two that were available and they were backed by a certain government. But there is now something like 6000 cryptos. There is no barrier to entry, anyone can launch one.”

The IRD treat crypto-assets as a form of property – similar to that of gold bullion which like Bitcoin doesn’t generate income while it is held, only when it is disposed of – although the tax treatment depends on the characteristics and use of the crypto-assets. If your crypto-assets are stolen you may even be able to claim a deduction for the loss. 

But when you cash out your gains will be taxed like any other income – although there’s nothing to stop the investor from cashing out by simply investing in another coin.

There are also questions around GST. 

At present cryptocurrency that’s made in the course of carrying on a taxable activity can potentially also be subject to GST, which hardly seems fair.


The recent Kaseya and Waikato DHB ransomware attacks have highlighted the use of cryptocurrencies by criminal gangs, something our police force is well aware of. 

I’ve written before how our government should take the opportunity to make illegal crypto payments to these hackers and it’s hoped the committee will help develop a policy around future attacks whether they be on government or private institutions.

But, again, enforcement is an issue as cryptocurrencies bypass any anti-money laundering checks with illegal proceeds easily transferred without any oversight by authorities, as the NZ police has found. 

In the past six years, they’ve confiscated $32 million in crypto and have recently been stung themselves, when overseas criminals stole $45 000 out of the police’s digital wallet.

Updating the tax laws and providing further points for discussion by the government around creating a nascent regulatory framework – perhaps through multilateral cooperation – will be key issues for the committee.

Regulators elsewhere have raised the prospect of issuing a sales tax on all crypto-currency transactions, with rebates offered to purchasers if they forego anonymity; another possibility might be regulating the exchanges that act as the interfaces between crypto and regular currency.

But that’s just nibbling around the edges.

Many investors are attracted to crypto because it side-steps regular banking systems, and perceived government control; one proponent of Bitcoin sees it as “an insurance policy against an Orwellian future.”

While the committee might make some ground on establishing some feel-good protocols around the environmental impact of bit mining here, attempting to regulate a decentralised peer-to-peer digital commodity like cryptocurrency will be a very tough ask.