Cryptocurrencies and global regulatory bodies have had a “Will They Won’t They” stance from the time of Bitcoin’s inception. From initial distrust and contempt from global regulators to curiosity, to gradual, cautious, acceptance, things have come a long way since 2012.
In the US, the bull run of 2017 was the watershed moment, when the government bodies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) began taking an active interest in cryptocurrencies and Initial Coin Offerings (ICO). An estimated $4.9 billion was raised through ICOs in 2017. A little under one billion of that amount went into two crypto-based startups, the sheer volume of which was enough to pique the interest of regulatory bodies to delve deeper into understanding cryptocurrencies besides their underlying technology, blockchain.
Around the same time, half a world away, India was just beginning to take its first steps into cryptocurrency regulation. As the bull-run simmered down, from $19000 in December 2017 to $6000-$7000 range in early 2018, the Indian finance minister Arun Jaitley announced that cryptocurrencies are not a legal tender, resulting in RBI passing a de-facto ban on Indian banks from working with cryptocurrency exchanges. Prior to the ban, there were over 2,500 users trading Bitcoin daily in volumes close to $20 billion a year.
After nearly a year and a half of adjournments, the Supreme Court overturned the banking ban and allowed exchanges to resume their businesses on March 4, 2020. Since then the average daily cryptocurrency trading volumes across the top Indian exchanges has grown by nearly 500%.
However, in the recent Union budget session, the government listed a bill providing for the banning of all private cryptocurrencies in India besides launching its own Central Bank Digital Currency (CBDC). Now, what needs to considered here is that globally, cryptocurrencies, such as Bitcoin, owing to their public nature is considered a fully public currency. Secondly, the manner in which the industry has witnessed an exponential growth in terms of adoption cannot go unnoticed. If India bans cryptocurrencies it would mean leaving 7 Million+ people who currently hold assets worth over $1 Billion in the lurch, which eventually could have an adverse impact on an economy already battered by the pandemic.
Another point in case — Elon Musk’s 1.5 billion USD worth investment in Bitcoin this week, is a huge testament to the potential of the digital asset. In this context, a probable ban would also repel a trillion dollars in crypto capital from coming to India, causing a capital flight.
According to the International Monetary Fund, “Cryptocurrency could completely change the way we sell, buy, save, invest, and pay our bills” and “could be the next step in the evolution of money.” Owing to their decentralised nature, cryptocurrencies can potentially strengthen India’s monetary system. Consider remittances – India is the world’s top recipient receiving about $80B annually. Crypto can channel large flows of money across borders seamlessly.
However, RBI’s intent to explore CBDC has a positive stance for the industry, considering most developed economies such as England, Canada, Japan, Singapore, Hong Kong are already at advanced levels of designing such systems while also exploring use-cases such as cross border payments.
Now, irrespective of which route the government takes, we would like to reiterate that we are as always, ready to hold dialogues with the government to help further the cause of regulating cryptocurrencies and blockchain technology.
Every disruptive industry needs time to scale up and regulations in parallel will offer the right patronage. Public blockchains like Bitcoin and Ethereum can prove to be the financial building blocks of tomorrow. Recognising them will help India with new job opportunities and an accelerated GDP growth. In the wake of developed economies embracing cryptocurrencies, resistance from regulators will result in India losing out on the global technological race.
Sumit Gupta, CEO and Co-founder of CoinDCX.