Crypto regulation offers India an opportunity that must be seized

Crypto regulation offers India an opportunity that must be seized

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is under review and likely to be tabled in Parliament shortly. The contours of the bill are not public yet. However, market commentary suggests that it will permit the issuance of a central bank digital currency (CBDC) and the use of blockchain and distributed ledger technology that underlies a cryptocurrency. As for private digital currencies, recent comments by finance minister Nirmala Sitharaman indicate that rather than an absolute ban, there may be experimentation, exploration and encouragement of the emergent technology behind these.

Given the rapidly-evolving crypto developments, policymakers and regulators appear to have taken an opportunity to proactively embrace a promising technology. Global use cases are growing, as cryptos go mainstream with widespread applications. Applications of blockchain include its use in ‘regtech’ for regulators to capture and store data, in automated risk management, and for the facilitation of regulatory reporting as well as supervisory processes. Central banks around the world, from the European Central Bank to China’s and Turkey’s, are in the process of issuing CBDCs. This could be done in India, too. A recent Reserve Bank of India (RBI) report on currency and finance for 2020-21 rightfully recognizes the potential of CBDCs for financial inclusion and improving aggregate demand in emerging markets, as also for enhancing the speed of monetary policy transmission. RBI did indicate that a CBDC is a “mixed blessing", as it would risk disintermediation of the banking system.

In this context, any policy, legislative or regulatory approach to private cryptocurrencies must embody the principles or proportionality and proactiveness. When RBI banned crypto purchases through Indian banking channels, the Supreme Court struck it down, stating that while RBI was empowered to regulate cryptocurrencies, such power must be exercised with proportionality, backed by adequate empirical evidence. According to the Basel Committee, among others, the proportionality principle stems from the need to ensure that any state intervention—in the form of rules, sanctions and oversight—is aimed sharply at the achievement of a desired policy objective. A regulatory strategy for cryptos must not be excessive, but oriented towards mitigating the specific risks they present. There are several risks associated with cryptocurrencies, including their lack of backing by a tangible asset. It means they may have no intrinsic value from a traditional perspective, but a virtual market value. Their price discovery is in uncharted territory, which heightens the risk of market manipulation and has implications for consumer protection. They also raise concerns of information asymmetry, hacking vulnerability and fire sales, and thus of potential threats to systemic stability. Some of these risks are unique to cryptos, while others attend other financial products too, but each must be addressed through sound regulation.

RBI governor Shaktikanta Das’s recent statements must therefore be heeded, particularly on consumer protection and financial stability. A report of the Financial Action Task Force (FATF) underlined crypto anonymity and layering as intensifying the risks of money laundering, but the FATF also provides risk-based guidance to mitigate such risks through a combination of traditional and non-traditional methods, including customer identification, verification and transaction-monitoring prerequisites. We need a well-conceived regulatory framework that facilitates transparency, and the responsible democratization of market participants could guard against digital invasion and coercive behaviour. Pre-emptive regulation can monitor and prevent such undesirable outcomes.

A virtual ban without a market-linked regulatory architecture, however, may lead to unintended consequences and prove counterproductive. Research demonstrates that outright bans tend to push an activity underground, which allows for abuse. Further, bans are almost impossible to implement in a digital world where regulatory islands cannot exist. Given cross-border flows, what is needed instead is a multilateral platform for regulation, even as countries protect their own jurisdictions. The absence of this will result in circumvention and cross-border arbitrage.

Cryptocurrencies also present opportunities that the government and regulators must catalyse. There is adequate empirical research on how decentralized, peer-to-peer finance through blockchain-based cryptos can make financial services more accessible, cost effective, efficient and interoperable. The FATF had as far back as 2014 highlighted the potential for financial inclusion through appropriately-regulated virtual currencies. India could use them to deepen its financial markets.

Letting RBI issued a CBDC while limiting or restricting private cryptos is well intentioned from the perspective of monetary sovereignty—the exclusive power of the state over legal tender. Multilateral agencies like the International Monetary Fund (IMF) have indicated that private and public money can coexist, and in complementary rather than contradictory roles. According to the IMF, just as we value innovation and diversity in all spheres, we must do so in the monetary system as well, though without compromising stability.

Public-policy objectives, from consumer protection to systemic safety, can be addressed through micro and macro prudential regulation of private digital tokens, with an eye kept on market conduct, data privacy and operational resilience.

As a matter of good regulatory governance, any legislative or regulatory prescription should be participative. Private cryptos can be tested in a controlled environment, such as a regulatory sandbox or RBI’s Innovation Hub. This would allow the experimentation mentioned by Sitharaman, not only for market participants, but for regulators as well. This will allow policymakers to examine and monitor crypto applications and provide an iterative learning process through which more robust regulations could evolve.

In conclusion, the proportionate, proactive, participative and process-driven regulation of cryptocurrencies will aid the success of Digital India. The regulation and acceptance of cryptos can be done in two stages. A CBDC can mark the start of India’s journey into the world of digital currencies, but must not be an end in itself. Private cryptos may well be sustainable under regulation and could also help the government and central bank meet key policy objectives. Today, India has a chance to be a global leader in framing the regulatory architecture for a new digital world. The democratized and appropriately-regulated use of cryptocurrencies is an opportunity that the country must seize.

These are the authors’ personal views.

Sunil Mehta and L. Viswanathanare, respectively, chairman, Yes Bank and CMD, SPM Capital Advisers; and partner, Cyril Amarchand Mangaldas

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India’s crypto turmoil could be driving Bitcoin down - CityAM

Suggestions that the Indian government may introduce an outright ban on cryptocurrency could be the trigger behind Bitcoin’s volatile 48 hours and drop below $55,000.

Bitcoin (BTC) was flying only three days ago, setting an all-time-high as it broke $60,000 with conviction.

The price looked like it was preparing to bed in while it gathered support in unchartered territory, but the signs of something being amiss were beginning to show up on the charts in the early hours of Monday morning as New Dehli was waking up.

Rumours of the Indian government’s apparent desire to outlaw cryptocurrency have been circulating for several years, but the fires of disregard to digital assets were being fully stoked this week as news of a draft bill detailing the ban began to emerge.

A tip-off from a senior government official leaked some of the details which suggested anyone found mining or owning cryptocurrency in India would face asset seizures, fines or even prison sentences.

It is understood the bill, if passed, would come with a six-month grace period to allow anyone holding cryptocurrencies time to dispose of their assets.

This potential amnesty, say analysts, is the driving force behind Bitcoin’s tumble from a high of $61,701 on Saturday, to a depth of $54,013 earlier this morning.

The situation in India paints a sudden and dark backdrop to what had been Bitcoin’s brightest spell in the flagship cryptocurrency’s 12-year-history.

Stimulus cheques

After solidifying support above $58,000, BTC looked to be building strongly and preparing to load up with US stimulus cheques in the coming weeks. Coupled with continual adoption from global institutions, the outlook of fresh investment was leaving the majority of commentators in bullish mood.

Few, however, had envisaged the spectre of the Indian government’s hostility towards crypto reappearing to throw a spanner in the works and triggering a flurry of sell orders.

Technical analysts are currently dissecting a mixed bag of information, with a fair split of opinions as to where the gravitational pull on Bitcoin currently sits.

Some suggest there is strong support at $51,000 and $49,500 which could lead to a bounce back up to the weekend’s highs, providing the investment predictions of Americans waving their stimulus cheques at crypto exchanges ring true.

Others claim the charts point to $54,000 being the line of defence that will hold Bitcoin steady.

Of the thousands of lines being drawn on countless charts today, there is no denying the market has taken on a bearish influence as the bulls steel into defensive mode.

Should those defences at $54,000 hold robustly enough to keep any bearish sentiment at bay, the bulls can strengthen and return to attack mode.

The crypto compass is currently in the hands of the Indian government and the American people.

New Details About India Banning Cryptocurrency Emerge — Crypto Community Sees Mixed Messages – Regulation Bitcoin News

New Details About India Banning Cryptocurrency Emerge — Crypto Community Sees Mixed Messages

New details have emerged suggesting that the Indian government will go ahead with banning cryptocurrency, in contrast to what the crypto community believes. In her latest interview regarding cryptocurrency legislation, India’s finance minister said that there will be a window for experimentation for cryptocurrency, blockchain, and fintech.

Reports of India Banning Cryptocurrency

The Indian crypto community is closely watching whether the government will ban cryptocurrencies, including bitcoin. A cabinet note regarding cryptocurrency legislation is being finalized and will soon be submitted to the cabinet.

The latest information regarding the Indian crypto ban comes from Reuters which reported Sunday night that “India will propose a law banning cryptocurrencies, fining anyone trading in the country or even holding such digital assets.” The publication cited an unnamed senior government official who claims to have direct knowledge of the plan. He said that bill “would criminalise possession, issuance, mining, trading and transferring crypto-assets.”

According to the official:

The bill would give holders of cryptocurrencies up to six months to liquidate, after which penalties will be levied.

Moreover, officials are confident that the bill will be enacted into law as Prime Minister Narendra Modi’s government holds a comfortable majority in parliament, the publication added.

Crypto Community Believes There Will Be No Ban

Many people on social media do not believe that India will go through with banning cryptocurrency, however, suggesting that the information provided by Reuters is outdated. They believe that the finance minister, Nirmala Sitharaman, has indicated in her recent interviews that cryptocurrency will not be banned.

Over the weekend, the finance minister talked about bitcoin and cryptocurrency legislation in an interview on India Today. She was asked if India was heading into the zone where it is inevitable that the government will have to come around to the realization that cryptocurrencies are here to stay.

The minister of finance reiterated that a “cabinet note” on cryptocurrency is “getting prepared” and is “nearing completion.” She confirmed that it will soon be taken to the cabinet.

Noting that the supreme court has commented on cryptocurrency and the Reserve Bank of India (RBI) will make a call on the official digital rupee, the finance minister affirmed:

From our side, we are very clear that we are not shutting all options off. We will allow a certain amount of window for people to use so that experiments in blockchain, bitcoin, or whatever you may want to call it, the cryptocurrency experiments, and fintech which depends on such experiment will have that window available for them.

However, she emphasized that specific rules about cryptocurrencies will be in the cabinet note, which will be “ready soon.”

Earlier this month, Bitcoin.com News reported that the finance minister said: “There will be a very calibrated position taken … We are not closing our minds. We are certainly looking at the ways in which experimentations can happen in the digital world and cryptocurrency and so on.”

Her statements have given the Indian crypto community hope that India will regulate cryptocurrencies instead of imposing an outright ban.

However, according to Reuters’ most recent report, the senior official said that the plan is to ban private crypto assets while promoting blockchain technology and fintech. He was quoted as saying:

We don’t have a problem with technology. There’s no harm in harnessing the technology.

He clarified that the government’s moves would be “calibrated” in the extent of the penalties on those who did not liquidate crypto assets within the law’s grace period.

In the cryptocurrency bill published in 2019, the interministerial committee in charge of drafting the bill recommended “jail of up to 10 years on people who mine, generate, hold, sell, transfer, dispose of, issue or deal in cryptocurrencies,” the publication conveyed, adding that the official declined to discuss specifics in this area.

Meanwhile, Indian crypto traders are enjoying the crypto boom as the price of bitcoin hit all-time highs several times over recent months. Leading cryptocurrency exchanges in the country have reported record-high trading volumes and numbers of new users. “The money is multiplying rapidly every month and you don’t want to be sitting on the sidelines, a crypto trader named Sumnesh Salodkar was quoted by Reuters as saying. “Even though people are panicking due to the potential ban, greed is driving these choices.”

Do you think India will still ban bitcoin? Let us know in the comments section below.

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