Cryptocurrencies have been in the spotlight ever since the Supreme Court removed the blanket ban on them in early 2020. What first started as a curiosity vehicle, with the proliferation of exchanges and booming markets throughout 2021, turned into a widespread phenomenon. India, despite being a late entrant, embraced the crypto world with open arms and today there are as many as 27 million Indians who hold crypto assets, largely from Tier II and Tier III cities. Just to put it into perspective, this is not far from total active Demat accounts which have been existing for decades now.
However, for a country as large as ours, it is imperative that any instrument which involves investment from the common public must have enough guardrails and regulations so as to ensure the safety and peace of mind at par with equities and mutual funds. This is one aspect where perhaps India has lagged behind despite the massive penetration of the last two years. I would like to remind you, adoption and regulations are a regular cycle of every novel concept and there were doomsday predictions for mutual funds also as late as in the 90s before they became ubiquitous in the new millennium.
What steps have the Centre taken on crypto so far
Cryptocurrencies are a very interesting convergence of assets, currencies and technology. A close observation of the steps taken so far by the Ministry of Finance reveals our regulators look at the three aspects differently and I reckon it is the root cause why India has offered mixed signals so far and has taken time so that it can support the budding industry while also protecting investor interests.
If we closely look at all the announcements made during the last Union Budget, while the majority of noise has been around crypto taxation, a very interesting detail around our government’s firm commitment to establish and promote Digital Rupee (a crypto version of the INR) has been a very welcome step which has also been reiterated by RBI since then. Cryptocurrencies on blockchain are generationally advanced as compared to the current digital version of money and India (like always) has been open to adopting a new technology which offers nothing but benefits.
The second facet, of treating it as an asset is now well legitimised with the introduction of TDS and income tax. While it can be argued whether the rates are high (or low), or whether the policymakers should treat them at par with STCG and LTCG, it should be a cause for celebration for the nascent industry. Taxation is the regulator's way of approving it, and it clears the air that it is now perfectly legitimate for one to trade and own crypto. These are early days, and I am certain with the passage of time and with growing understanding, taxation will gradually be more investor friendly.
That brings us to the third aspect of crypto as a currency wherein (unlike some of the countries) our regulators have been firm (and rightly so!) that its treatment cannot be at par with a currency which they see as a warning sign to the monetary equilibrium. Currencies are a highly liquid store of value, and we need to ensure we carefully observe how it unfolds in India and abroad so that we can take measured steps to ensure the innate lack of traceability of cryptos poses no trouble whatsoever.
India and crypto: Future ahead
Our honourable Minister of Finance spoke about international collaboration on crypto last month. India should look no further than our neighbours Singapore and Dubai; two countries which are now at the forefront of leading the crypto revolution in the right way. Crypto(s) exhibit a very interesting dual behaviour wherein on one hand it is visible to all, but on the other hand it is not attributable so long it remains on blockchains. This in my opinion is the bone of contention and the government should create the framework, partner with exchanges and issue licences so that firms like ours (and others) can act as the facilitator of what our regulators want and bring India forward with blockchain tech.
India missed out on the silicon revolution but made amends with the software boom and the benefits are obvious for all of us to see. Everything novel has its pros and cons, and the need of the hour is to create facilitation with controls so that we embrace everything which is good about it, and under no circumstances miss on the blockchain revolution which will be a massive boom for our economy a decade from today.
Cryptos received a mixed response from different countries so far. El Salvador became the first nation to adopt Bitcoin as a legal tender alongside the US dollar. However, it suffered heavy losses. Despite criticisms from the International Monetary Fund (IMF) and several credit agencies, the Central American nation kept on adding BTCs to its national reserve and even went on to reveal plans to set up a crypto trading hub called Bitcoin City. However, owing to the recent crash in BTC prices and the overall crypto market cooldown, the country’s investments are losing value, estimated to be over $50 million.
On the other hand, you have China, which came down dramatically on crypto platforms and its various aspects. So much so that crypto traders and miners eventually had to move out of the country and set up bases in other south Asian nations to continue with their businesses.
Perhaps India’s cautious approach to crypto and its various aspects could be treated as a learning curve for other governments to follow, before deciding to outrightly adopt or ban the sector without dedicated research.
The author is the founder of weTrade Technology, a leading firm in the crypto space. A technology veteran of 20 years, the IIT Kanpur alumnus had been part of Flipkart leadership for 8 years.
Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal. 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.