The government may ask stock and commodity markets watchdog Sebi to oversee cryptocurrencies and regulate the affairs of exchanges dealing with them, as it considers a proposal to classify cryptos as financial assets, industry sources told FE.
Investors may get at least three months to declare their crypto holdings and have to comply with new norms. A final decision, however, will be taken by the Cabinet, which may consider on Wednesday the draft the Cryptocurrency and Regulation of Official Digital Currency Bill 2021, the sources said. The new Bill will likely use the term ‘crypto-assets’ instead of ‘cryptocurrencies’, they added.
The government intends to introduce the Bill in the ongoing winter session of Parliament. According to the list of legislative business for the Lok Sabha, published on November 23, the Bill seeks to “prohibit all private cryptocurrencies”, though it will allow “certain exceptions to promote the underlying technology of cryptocurrency and its uses”.
The industry sources, however, claimed that the government would now take a more nuanced stance, instead of imposing an outright ban on private cryptos. While the Centre will prohibit the use of private cryptos as a legal tender, it may classify them as financial assets, the sources added.
“The new Bill provides for a general prohibition on all activities by individuals in mining, generating, holding, selling, dealing in issue, transfer, disposal of or use of cryptocurrency as a medium of exchange, store of value and a unit of account,” one of the sources said.
In a recent interview to FE, chief economic adviser KV Subramanian conceded that even granting private cryptos the status of a financial asset is fraught with risks at this point, and any such decision, if at all it’s made, must follow careful examination. This is because a cryptocurrency doesn’t derive its value from any underlying asset or earnings, nor does it add to real economic activities, he indicated. So, the valuation can be easily swayed with speculative bids, causing excessive volatility. Retail investors, especially the small ones, would struggle to cope with such wild fluctuations.
The Bill will also create a facilitative framework for the launch of the official digital currency by RBI. Currently, cryptos remain unregulated in India.
The government is also reportedly planning to amend the income tax laws to bring cryptocurrencies under the tax net, with some changes expected in the next Budget. Already, some investors are paying capital gains tax on their income from cryptocurrency.