India’s Crypto Future: How RBI-SEBI Partnership Could Transform VDA Landscape

The collaboration of SEBI and RBI to establish a crypto policy comes against the backdrop of high taxation and regulatory scrutiny in India, as well as globally.

While RBI still holds a pragmatic view of all virtual digital assets (VDAs), SEBI’s stance has been more favourable to the proposal.

Source : Ewan Kennedy/Unsplash

By Roshan Aslam

Following India’s G20 presidency in 2023, it was clear that India was adopting more openness towards cryptocurrencies. The summit cleared all doubts over India’s future outlook on driving cryptocurrency adoption as a new asset class, as the country advocated strongly for an international collaborative effort to introduce crypto regulations. However, little information was shared by the Government of India over what such an arrangement would entail.

A year, and two Union Budgets later, this notion is once again gaining traction. The Reserve Bank of India (RBI) has historically maintained a cautious approach towards cryptocurrencies, however, market regulator Securities and Exchange Board of India (SEBI) has come up recommending oversights in crypto trading. 

As things stand, the RBI and SEBI have been tasked with developing a comprehensive crypto policy that has the potential to become the foundation of global crypto regulations. The Government is expected to release a discussion paper on this soon, but the impact this will have cannot be understated by any means. 

Significance Of Crypto Policy

One of the most significant aspects of cryptocurrencies is their decentralised nature. This means that cryptocurrencies are not regulated by a central governing body, such as the RBI in India. While this allows users and investors much more freedom, it also exposes them to several risks and highlights the potential for illegal activities. This reason has been the primary reason behind several countries banning crypto as legal tender, however, while India has had its fair share of doubts, it has decided to adopt a different approach. 

By formulating a comprehensive plan to regulate cryptocurrencies like Bitcoin, the Government’s primary objective is to safeguard investors, curb illegal activities and reduce the volatility of crypto markets. While experts share different views on this, this has the potential to drive crypto adoption in the country. As SEBI and RBI look to come up with a comprehensive crypto policy, it will also act as the foundation of a global crypto resolution, something that was discussed in detail during the G20 summit in 2023. For example, Bitcoin in India will directly come under the government’s purview, with more governments taking similar actions globally.

As part of the process, the Indian government will be publishing a discussion paper that will reveal the Government’s stance before September 2024. A milestone in itself, this paper will be looking to accumulate investor feedback to develop the final draft of the crypto policy. This is solely because the existing regulations associated on a governmental level only focus on curbing money laundering and counter-terror financing measures. However, as stakeholders become engaged, the regulations may also be supportive to safeguard the interests of Indian investors. When India advocated for the same during its G20 presidency last year, the proposal received widespread support, and may again be backed for its compliance with international guidelines set by the IMF and the FSB.

Impact On Sector

While RBI still holds a pragmatic view of all virtual digital assets (VDAs), SEBI’s stance has been more favourable to the proposal. It has recommended different regulators to oversee crypto transactions in the country on different levels earlier this year. 

However, a collaboration between the two agencies may pave the road to a fruitful and futuristic policy for regulating this new asset class and inspire new investors to enter the crypto market. SEBI’s recommendations paint a more holistic approach to the matter, however, it will be the Government’s discussion paper that will shed more light on its intentions regarding the crypto regulation policy. 

As India boasts of one of the highest crypto adoption rates in the world, this is supplementing an anticipatory sentiment in the general crypto market and favourable policies will bolster the participation from both retail and institutionalised Indian investors in the crypto market. This may also be a signalling paradigm shift by the Indian government and may be replicated by other countries who responded favourably to India’s proposal at the G20 summit.

The collaboration of SEBI and RBI to establish a crypto policy comes against the backdrop of high taxation and regulatory scrutiny in India, as well as globally. These are proving to be barriers for global crypto players to sustain businesses, and a comprehensive outline for a crypto policy will be beneficial in the long run. Apart from incentivising investors, it will also provide a future outlook for crypto as a new-age asset class, raising awareness, demands and overall participation.

(The author is the co-founder & CEO of GoSats) 

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.