India's Crypto-Currency Markets; Whether To Regulate Or Ban-It?

Crypto-currency has become one of the most discussed topics anywhere. It has been in the news for a long time now. However, the recent intention of the Indian government to introduce 'The crypto-currency and regulation of official digital currency bill, 2021' is an arena that is gaining wide attention nationwide. Given the doubtful legality of cryptos and its high volatility, there has been a mushrooming of different platforms offering a range of services, from providing exchange facilities to platforms providing crypto-loans.

Ever since the ban on crypto-currencies was lifted by the RBI in March 2020, investments in them have increased exponentially, especially during the COVID-imposed lockdowns when investors were in search of investment options. These currencies have attracted a lot of money and attention from investors. As per the report by Broker-Choose, currently, India has the largest number of investors in the world at over 10.07 crores, followed by the US and Russia.

Elements of the bill:

In an official notification, the government stated that it will ban all private cryptos and that the RBI will issue new official digital currencies in India. According to the parliamentary bulletin, "the stated intent of the bill is to create a facilitative framework for the creation of official digital currency to be issued as well as regulated by the RBI." Additionally, the bill seeks to prohibit all other private cryptocurrencies from the market. Also, there is no bar on an underlying digital ledger or blockchain technology at the heart of the database. It will be treated as an intangible financial asset and will be taxed by the government. However, some exceptions will be granted for some lawful uses. The bill is yet to be finalised by the cabinet.

The government is keeping a keen eye on the global market scenario as well, to make frames and policies that are on par with the world economy.

Should cryptos be treated as assets?

There exist more than 4,000 different types of cryptocurrencies in the world. Further, the price of these currencies is astonishing. On the one hand, a well-known currency such as Bitcoin can cost you nearly 38 lacs. On the other hand, it can be as low as 0.0002715 [Shiba Inu]. That's not even a rupee! Is it worth its value? This is a question that requires serious thought before investing.

There has been a lot of debate on whether decentralized-technologies databases should be considered as a separate class of assets or not. One side of the coin signals towards the upcoming and untapped opportunities attached to them, with a promising future in FinTech and information technology as it is considered a combination of business, services, and capital in one crypto. It can be treated as a special class of asset and be subject to special legislation and regulations.

But looking at the darker picture and the presence of inadequate knowledge about the same, it may pose a great and unknown threat to national security and sovereignty. There is a possibility that these crypto-frameworks are [mis]used by money launderers, terrorists, or other anti-national elements of society.

Is regulation possible?

Why is everyone so insane about investing in cryptocurrency, from people on the road-to-red carpet? The craze is evident from a recent incident where PM Modi's official twitter-handle got hacked, ironically only to make a tweet, granting the status of a legal tender to cryptos' in India! As per the World Bank report, the total market capitalization of the global crypto-market stood at $2.6 trillion, which is the same as India's GDP for all of 2020. As of November 2021, it added another feather to its crown by hitting the $3 trillion mark.

All the terms like decentralised ledgers, blockchain technologies, secured transactions, higher returns, and massive potential are attached to cryptos. However, these are the very components that are difficult to regulate. The absence of a central authority in regulation, the use of pseudonyms that are not linked to any user, and the use of high security makes it very difficult for the government to supervise, and it paves the way for various illegal activities like cybercrime, drug financing, terror financing, dark web supporting, money laundering, to name a few. Taking this into account, how regulation will be done by the government is, for the time being, to be explained.

The RBI's stand on the issue:

On many occasions, the RBI governor, Mr. Shaktikanta Das, has raised his serious concerns and sounded sceptical about the issue. He is of the opinion that there are serious concerns about the macro-economic and financial stability of the nation and that they need much deeper and well-informed decisions. However, the RBI in August 2021, signalled towards the launching of it's own-official digital currencies, also known as Central Bank digital currencies [CBDC], which is proposed to be a legal tender. At a recent central board of directors meeting held in Lucknow on 17th December, 2021, RBI stated its detailed presentation and concerns related to intangible asset management originating overseas as well as its anonymity of transactions. Furthermore, it went to the extent of saying, 'RBI is in favour of a complete ban on them'.

Way forward

Taking a stern stand and banning all the cryptos will definitely not help, as it will be a big no in the face of many underlying technologies and their uses that are associated with the same. Additionally, given the privacy attached and the decentralized-ledger-based blockchain-tech of the cryptos, how regulation will be done is a valid question that remains unanswered as of now. Although the government seems to be preparing itself to table its bill on cryptos in the upcoming budget secession of parliament, the central banks' opposing stance and concerns only add to the confusion.

All in all, the government is entrusted with the responsibility of coming up with a favourable framework for adequate safeguards for the protection of its investors as well as the security of the nation, and it is prima-facie that is required outside of the government. And at the same time, "the government can't let its investors' money go to vain just on a tweet from a masked-man-musk!