Donald Trump’s Landslide victory in US elections has brought the focus back on cryptocurrencies, which saw their market capitalisation cross $3 trillion. Bitcoin, the biggest, hit an all-time high of $93,000 due to the “Trump Bump”. Earlier this year, Trump had reiterated his plan to make the US the “crypto capital” and “Bitcoin superpower” of the world.
This new approach of the US administration is also a call for many other governments, including India’s, to bite the bullet on regulating cryptocurrency. In India, the status of cryptocurrencies is curious: while they are legal to trade and hold, they are not recognised as legal tender. This means people can buy and sell digital assets like Bitcoin and Ethereum, but cannot use them for everyday transactions.
The Reserve Bank of India’s (RBI) opposition to cryptocurrencies is well known. In 2018, the RBI imposed a ban on banking support for crypto transactions, but this was overturned by the Supreme Court in March 2020, restoring banking services for crypto exchanges. The Securities and Exchange Board of India seems to be more open to the idea of regulating cryptocurrencies.
Its recommendation that cryptocurrencies should be regulated through multiple regulators is a welcome development. Chairperson Madhabi Puri Buch had said that cross-border asset classes that operated outside regulated markets have the advantage of anonymity, tokenisation, and instantaneous settlement. While anonymity was out of the question in a regulated market, it is possible to offer the other two to investors.
Recently, noted investor Ruchir Sharma also put his weight behind cryptocurrencies. He believes that despite a lot of speculative fluff being built up on the price, cryptocurrencies as an asset class are here to stay because people are looking for alternatives to the US dollar, and both Chinese currency and the euro have failed to live up to expectations. According to him, both gold and cryptocurrencies like Bitcoin have become the default options for those seeking stability in uncertain times.
India must make its stand on regulation clear. The fact is that almost 20 million Indian investors are already participating in cryptocurrencies. The age profile — 75% of investors are between 18 and 35 — is quite similar to those investing in the futures and options market.
Rising worries about the high retail participation in the derivatives market have led to strict guidelines from the market regulator and a higher securities transaction tax. The latter hasn’t had much impact on trading volumes; however, the former is expected to make things much more difficult.
It’s a good time for the government and regulators to realise one important thing: There is no other way but to attempt regulation of cryptocurrencies. And time is running out. In October last year, G20 nations under India’s Presidency had adopted the road map for crypto regulation as proposed by the International Monetary Fund and the Financial Stability Board (FSB). The road map is not in favour of a blanket ban on crypto-assets, while it vouches for comprehensive regulatory and supervisory oversight as a better option. Later, the G20 New Delhi Leaders’ Declaration endorsed the FSB’s recommendations for the regulation of the crypto-asset market.
Though the next G20 meeting is approaching, not much development has taken place. India must prioritise publishing its discussion paper as it would align with India’s G20 presidency objectives, which emphasise a coordinated and comprehensive regulatory framework to manage crypto-asset risks. Looking the other way can’t be a sustainable strategy.