For most of the past decade, India’s stance on cryptocurrencies has been uncertain to say the least. The current soft ban is hurting the country’s potential every day, but recent reports suggest the country is in doubt.
In March of this year, the Department of Corporate Affairs said in a notice that companies dealing in cryptocurrencies should disclose their holdings to the government in financial statements. Crypto holdings will also have to disclose the total profits and losses as well as any deposits or advances received from other traders and investors.
Just two weeks earlier, there was a report that cryptocurrencies were expected to be criminalized under an upcoming law, including their trading, mining, issuance and possession. So why the sudden change of heart? And does anyone really know what’s going on?
Uncertain about being insecure
The MCA notification could not have come at a more unclear time for cryptocurrencies in India. In the Reuters report, Indian Finance Minister Nirmala Sitharaman stated that the government is taking a balanced approach to regulation and is not closing all options. The declining and increasing views of various government agencies and organizations call for more focus, but it may not be too late.
The leaders of the crypto industry in India have long been heralding the case for crypto regulation and are pushing hard against a ban that could paralyze thousands of businesses. The country’s demand for digital assets has never been greater, with a study dating back to 2018 conducted by Quartz, already linking one in 10 Bitcoin (BTC) purchases to the Indian subcontinent. It’s safe to assume that this level of interest and demand has only increased since then.
The latest report from the MCA could be a sign that the country is finally embracing cryptocurrencies and has been well received by most of the prominent blockchain-related companies in India, with most expecting to follow regulations rather than outright ban. In fact, a recent Reserve Bank of India’s currency and finance report recognizes the potential of a central bank digital currency for rising emerging market demand and improving monetary policy.
However, it also labeled the concept of “no unmixed boon”, making many intermediaries of the banking system obsolete. “CBDCs are important as they will bring India to the forefront of the currency wars that will take place over the next two to three years,” Sidharth Sogani, CEO of blockchain research and intelligence firm Crebaco Global, said in an interview with CoinTelegraph. However, he also added that there are many challenges with regard to the Indian economic structure and how it does not allow for the free movement and conversion of the currency.
“We are getting very positive signals from the government regarding crypto regulation,” said Shivam Thakral, CEO of BuyUcoin – an Indian cryptocurrency exchange – adding:
“We remain optimistic that the government will provide a healthy regulatory environment to enable the growth of the crypto industry in India.”
His sentiments were shared by Sumit Gupta, CEO of CoinDCX – one of the largest crypto exchanges in the country – “There has been a gradual shift in the story from what we saw in 2018 to now.” He further added, “I am confident that the government will pay attention to stakeholders in the crypto community before deciding on any action.”
Cryptocurrencies seemingly pose risks to the national economy in many ways, and without strict regulation, the unregulated economy of digital assets could indirectly manipulate Indian markets. Unlike traditional securities, cryptocurrencies are not backed by tangible assets, and this opens the asset class to unknown price territory and discovery, raising concerns about the stability of the system, implications for consumer protection, and an increased risk of information asymmetry.
The Financial Action Task Force, an intergovernmental financial regulator that fights money laundering and terrorist financing, recently highlighted how the anonymity provided by some cryptocurrencies could amplify money laundering risks. However, it also provided guidance on how to mitigate those risks through a combined approach of untested and age-old methods.
A well-designed regulatory framework could help promote transparency and democratization of market participants, while protecting markets from malicious players. They say prevention is always better than cure, and preventive regulation can set the standard that blockchain companies must meet to best support the country as a whole.
In fact, a regulated crypto infrastructure could help the Indian economy grow unlike anything else. According to Gupta, “given the sheer size of the crypto market in India, with more than 75 lakh [7.5 million] investors and more than 340 crypto startups, crypto regulation will have a significant positive impact on the Indian economy. “
He also said that with smart and sensible regulation, blockchain technology will create more jobs for people and usher in an era of transparency for our financial system. In addition, the large trading volumes on exchanges can become a major source of tax revenue for the government, provide exponential growth and create more prosperity for the blockchain ecosystem in India.
Despite the risks that crypto poses, a long-term outright ban would be counterproductive. Both research and history show that banning something tends to take those businesses off the grid, and this relaxation of control can have unintended consequences. In a world where internationally recognized currency can be sent across borders just as easily as an email, it’s also nearly impossible to ban outright.
Without a concerted effort to regulate cross-border flows on blockchain networks, no country will be able to protect its own economic jurisdictions, which could result in widespread international arbitration. While there is talk of a CBDC, issuing a state-backed cryptocurrency in India and restricting the buying and selling of other digital assets could also be harmful as a whole.
The International Monetary Fund, a global financial institution created to promote international monetary cooperation, has already indicated that both private and public money can exist while complementing each other. However, the IMF has also stated that we should value innovation and diversity without compromising stability and security.
Public policy objectives can all be addressed through macro and micro level regulation of digital assets. At the moment, the biggest bottleneck appears to be information. Government officials are far from experts in financial systems, decentralized networks or cryptography, and training state representatives could go a long way.
Conducting more research in controlled environments will allow policymakers to explore how cryptocurrencies are used and create a more robust framework for businesses in the country, as Sogani added:
“The potential size of the crypto market in India is more than $ 15 billion. Regulation in the right direction allows people to freely invest and trade crypto, creating more than 25,000 jobs. Everyone wants to operate in a regulated environment; nobody wants unnecessary lawsuits. “
Whether the current shift will remain in position remains to be determined, blockchain-based companies are largely collaborating. Over time, India could still potentially take over cryptocurrency regulation and help build the financial architecture of the future with the rest of the world.