For a long time, the cryptocurrency industry has had a tumultuous relationship with global regulators. While regulators of some countries like Switzerland have broadly accepted cryptocurrencies and foster their development, those of countries like India do not prohibit them, but are yet to formally define their legal status. Right now, India is far from truly reaping the benefits of cryptocurrencies and the potential they hold. One look at the global regulatory landscape for cryptocurrencies shows that the most progressive countries have either already regulated the industry, or have proposed legislation applicable to the emerging cryptocurrency market.
Singapore, which is considered a global technological hub, is a notable example. Cryptocurrency trading in the island nation is regulated by the Monetary Authority of Singapore under the country’s Payment Services Act, 2020, while public offers or issuance of digital currencies are regulated by its Securities and Futures Act, 2001. Legislation and associated licences have established a progressive framework for the regulation of payment systems and digital payment token services in Singapore, allowing cryptocurrency exchanges to continue operations there with ease.
Over the years, the crypto trade from across the globe, including India, has migrated to Singapore. No wonder, the city state is emerging as a global leader in adoption of cryptocurrencies, and benefiting from a thriving crypto economy, with new job opportunities and a fresh influx of foreign investments.
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Japan is another country forging a progressive regulatory environment for cryptocurrencies. It has already declared Bitcoin and other digital currencies as legal property under the Payment Services Act (PSA). The United States Commodity Futures Trading Commission has classified Bitcoin and Ethereum as commodities, while Canada has also taken a similar approach, with cryptocurrency businesses required to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
It is quite evident that these nations are looking to capitalise on the global trend towards adoption of cryptocurrencies, which presents a plethora of opportunities that benefit not just individual traders and miners, but also the country’s economy as a whole. A key aspect in this regard would be how cryptos provide a new channel of taxation and revenue to the national exchequer.
Several nations are already taxing cryptocurrency assets. New Zealand treats cryptocurrencies as taxable properties. Israel views cryptos as assets, while Japan’s National Tax Agency defines profits from crypto trading as “miscellaneous income”. Such policies foster growth of the cryptocurrency economy, making it easier for consumers to participate in the ever-expanding cryptocurrency market with confidence, while strengthening the country’s economy through a fresh revenue stream.
Bull Run: With its sizeable population accounting for a massive market that is looking for alternative sources of income—following the impact of the pandemic and the wounds of inflation, and with an already thriving community of crypto entrepreneurs and innovators—it is safe to say that India stands at a sweet spot of driving growth and innovation in cryptos.
India has maintained a high ranking in terms of cryptocurrency usage, demonstrating that Indians are embracing cryptocurrencies despite legislative hurdles. Peer-to-peer transactions have grown in popularity in India. WazirX, India’s largest cryptocurrency trading platform, is a good example. It grew from 1 million users to over 7.4 million users between January and August 2021. During this time, the overall transaction volume was recorded at $26.2 billion, accounting for an increase of 2,988 per cent, in comparison to the volume recorded through the same period in 2020.
In a nation where households are known to be obsessed with investments in gold, investment in cryptocurrencies have skyrocketed from a mere $200 million in 2020 to an estimated $40 billion. The enormous bull runs of late in cryptocurrencies such as Bitcoin, Cardano, Matic, Dogecoin etc have increased the popularity of digital assets in India even further.
Robust Regulation Is Key: Considering that our country’s economic success over the past decade can be mostly credited to IT and ITeS industries, if India plans on achieving PM Narendra Modi’s pipedream of a $5 trillion economy, we can’t ignore the already-existing $2.29 trillion global cryptocurrency market.
A forward-thinking crypto policy can have a significant impact on strengthening our overall financial infrastructure, enhancing national security, deterring financial fraud, strengthening monetary policy, attracting international capital, expanding job opportunities and retaining our tech talent, all of which would contribute to our transformation into a global economic powerhouse.
The private sector in India has always been an early adopter of fresh innovations. However, compared to nations like the US, India is still lagging behind in terms of institutional involvement, mostly due to regulatory uncertainty, making crypto-assets part of an unregulated market. We cannot progress so long as cryptos exist in a regulatory grey area.
Growing institutional support across the globe has made the crypto industry unavoidable. Several firms, like PayPal and Square, have adopted cryptocurrencies on a never-before-seen scale in recent years.
The great divide between banking institutions and the cryptocurrency industry has also significantly narrowed down in recent years. Leading institutions like JP Morgan, which once called Bitcoin a “fraud”, have now concluded that “the potential long-term upside for Bitcoin is considerable”. Following this, other industry giants like DBS have green-lighted crypto activities.
This indicates that worldwide, more people now have access to cryptocurrencies, boosting their demand. But to realise its full potential, the industry needs both public and private support.
A Collaborative Approach: The Reserve Bank of India’s restriction from a few years ago was the primary impediment to the industry’s development in India. But recently, the Supreme Court has declared that ruling unlawful. Since then, it appears that the Indian goverenment’s regulatory sentiments toward cryptos have mellowed a bit.
The crypto community in India was also swift to follow in the footsteps of major legislation in countries like Japan and South Korea—where people associated with virtual currency have taken a self-regulatory approach—to develop a “sandbox” for further regulatory innovation.
Along with some other Indian crypto trading platforms, WazirX has also become part of the Internet and Mobile Association of India (IAMAI), working to oversee compliance for crypto exchanges with a set of self-regulatory guidelines. Along with IAMAI, it is also working hand-in-hand with regulators and law enforcement agencies to prepare a draft version of the guidelines that will help curb illegal activities involving cryptos and mitigate scams in the interim period. Such steps will educate the masses, too.
The private sector has undoubtedly contributed to the rise of cryptos in India. But the government sector has also indirectly made some notable strides. For instance, efforts of the Securities and Exchange Board of India (SEBI) and the Union ministry of information and broadcasting towards drafting guidelines for crypto ads running on TV have, in turn, introduced cryptos to millions of Indians.
Union finance minister Nirmala Sitharaman has publicly stated that India will take a more collaborative approach towards the cryptocurrency industry, a sign of better things to come. To a degree, the government also recognises the industry’s potential and is actively promoting development.
“We’ve done a lot of work on it. We’ve taken stakeholders’ inputs. The cabinet note is ready. We have to see when the cabinet can take it up and consider it, so that we can move it [...] From our side, a window will be made available, at least for fintech, experiments and pilot projects, but the cabinet will have to take the final call,” the finance minister said when asked about the status of the proposed bill.
There are plans for a Central Bank Digital Currency, which is scheduled to begin pilot tests by this yearend. If successful, it will pave the way for widespread adoption of cryptocurrencies in India, which is the most likely outcome, given India’s status as a hotbed of cryptocurrency activity.
As of now, Parliament is discussing the draft bill that will appropriately compartmentalise cryptocurrency as a means of exchange, an asset class as well as an utility instrument. Recognising the formal and legal distinctions is critical because it will guide how cryptos are treated within the economy. This will contribute significantly to promote crypto adoption as well as to usher in beneficial regulatory measures for aidig the industry’s growth.
(This appeared in the print edition as "Towards A Decentralised Economy")
(Views are personal.)
Nischal Shetty, CEO, WazirX
