India calls for uniform crypto regulations as Asian markets grow amid boom and bust cycle
- ‘One country alone cannot do everything’ if regulation is required, says India’s financial minister as she leads the push for uniform rules in the group
- New Delhi’s call is likely to resonate with Southeast Asia, a popular destination for crypto investors, after a string of high-profile collapses last year, observers say
Indian businessman Saurabh Tiwari’s interest in cryptocurrency grew after he made a significant profit on a bunch of different tokens within a few months of buying them in 2020. But the boom soon turned to bust following a series of events such as Russia’s invasion of Ukraine and the collapse of crypto exchange FTX last year.
“If it requires regulation, then one country alone cannot do anything,” India’s Finance Minister Nirmala Sitharaman told reporters in New Delhi this week.
“We are talking with all nations, if we can make some standard operating procedure which is followed by everyone making a regulatory framework, and if it can be effective,” she said ahead of a G20 meeting of finance ministers and central bank governors in the country later this month.
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Southeast Asia, with nearly 700 million residents, has one of the world’s fastest-growing populations, with some 480 million of them being active internet users. The region is expected to have the world’s fourth-largest economy by 2030 and has emerged as a fertile ground for hundreds of crypto and blockchain start-ups.
There are more than 600 crypto or blockchain companies currently headquartered out of Southeast Asia, according to a report by global investment platform White Star Capital.
Rajagopal Menon, vice-president of India’s biggest cryptocurrency exchange WazirX, said the Indian government had probably realised that the only way to “mitigate the bad effects of crypto” was to have a global consensus on a regulatory framework that exists for traditional banking.
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A tough terrain
Crypto assets have been around for more than a decade, but it is only now that efforts to regulate them have gathered pace as they have evolved from niche products to mainstream speculative and payment instruments.
Evolving regulation around them is tricky because countries will have to train regulators in new technology skills and keep tabs on thousands of market participants who may not be subject to typical disclosure or reporting requirements.
Crypto assets refer to a wide range of digital products that are privately issued and can be stored or traded using primarily digital wallets and exchanges.
The assets are merely codes that are stored and accessed electronically and may or may not be backed by physical or financial collaterals or pegged to the value of fiat currencies.
In markets with crypto regulations, certain entities are typically authorised to carry out specific activities. Many functions in mainstream financial activities such as lending and deposits are now replicated in the crypto world, leading to more calls to harmonise the system.
The lack of uniform regulations across different nations leave space for traders and companies to flock to jurisdictions with more lenient or no regulations, and exploit arbitrage opportunities that creates cross border risks to the financial system, analysts say.
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“Unregulated guys can do anything they want. Having uniform regulations will help regulated entities like ours to compete well with the unregulated players,” said Bo Bai, executive chairman and co-founder of Singapore-based MetaComp, an accredited payment services provider including for digital tokens. “I think it will be very helpful to establish a harmonious set of rules for all the crypto service providers.”
He said consumers from unregulated markets had flocked to the company in recent months despite having to undergo an extensive screening process, as they were realising the value of safety in the wake of the recent global contagion.
Industry executives say last year’s collapse of FTX revealed systemic flaws that need to be plugged and that harmonising regulations would help.
“Some of those failures were issues of poor design and poor governance with no oversight. It’s not a failure of the underlying technology. FTX is a brilliant case of those governance failures,” said Esme Hodson, chief compliance officer of SC Ventures, a business unit of Standard Chartered Bank which invests in disruptive financial technology.
“The financial system requires innovation but that should not come at the cost of stability and exploiting any kind of customer vulnerability,” Hodson added.
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New Delhi could take a leaf from regulated markets like Singapore and Dubai and strive to find a middle ground among nations especially in the region to restore confidence among crypto investors, analysts say.
Other industry executives say uniform regulations would help aspects such as reducing arbitrage, but could end up delaying implementation of laws locally because of the time it will take to reach a common point.
“Ultimately, the ideal approach to regulating cryptocurrencies is likely to be a balance between these two perspectives, where countries adopt a common set of principles while still retaining the flexibility to tailor regulations to their specific circumstances,” said Anndy Lian, a partner at Singapore-based Passion Venture Capital and author of the book NFT: From Zero to Hero.
