LettersWhy India risks wasting cryptocurrency’s promise with regulation bill

Cryptocurrencies have found an eager audience in India, with tens of millions of investors piling nearly US$6.6 billion into digital assets

A proposed bill that could lead to regulation of digital currencies and associated assets runs the risk of hampering technological growth and development

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A worker talks on his phone behind a glass partition displaying a bitcoin symbol in an office in Bangalore on November 23. Photo: AFP

Published: 12:30am, 22 Dec 2021

With thousands of cryptocurrencies present across the world, India has 15 home-grown cryptocurrency exchange platforms with upwards of 20 million investors. With no boundaries and a minimal amount required to invest in these digital assets, crypto-exchange platforms in India have surged over time, minting a huge population of investors.

Drawn by celebrity advertising campaigns and simple, easy-to-use features introduced by various cryptocurrency exchanges such as WazirX, CoinSwitch Kuber, Binance and CoinDCX, many people have invested their money in these digital assets. By investing small amounts of their pocket money to earn maximum profits, these people have fuelled a surge in India’s cryptocurrency investments, which rose from just US$923 million in April last year to nearly US$6.6 billion in May this year.

However, the official announcement of the Indian government’s proposed Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which is aimed at regulating the cryptocurrency space, has left investors in a state of panic. The announcement resulted in people panic-selling their cryptocurrency investments, which led to a crash in the market.

In the absence of government regulations, the cryptocurrency market could pose risks of virtual theft, financing terrorism, high volatility and tax evasion, among others. However, there is also discussion about whether the Reserve Bank of India (RBI) has stood against the rise of private exchange platforms with its views that cryptocurrencies pose serious threats to the macroeconomic and financial stability of the country.

Although the government has yet to make a decision on the banning of cryptocurrencies or private exchange platforms, it appears that the passage of India’s proposed legislation would mean that the RBI would be the regulator for cryptocurrencies, while cryptocurrency assets would be regulated by the Securities and Exchange Board of India.

A complete ban on cryptocurrencies in India could hamper the progress of development and innovations that could be made through blockchain and other areas. There are many positive uses of cryptocurrencies that could help the country meet some of its pressing needs.