India & Crypto: Tale Of Two Minds
The crypto landscape in India seems like a narrative torn between conflicting desires, prompting us to ponder whether it is a crypto asset class or a cryptocurrency, whether it wants to be a crypto exchange or yearns for less regulation. Amidst these dilemmas, the Indian crypto industry's legal battle of 2018 against the RBI may have won some battles but lost the larger trust of establishing regulatory parentage. The industry's contentious relationship with regulators exemplifies the ongoing struggle to find a harmonious middle ground in India's crypto tale of two minds. The paradox continues: industry with a change of heart seeks regulation with no other way out, while regulators remain wary. Industry yearns for regulatory acceptance, yet the sector can't dictate the regulatory stance of its choice, convenience and timing.
Crypto's position as a fundamental component of Web3 blurs the policy lines, as Web3 encompasses more than just cryptocurrencies, leading to a confusing ecosystem that hampers its growth. This stance seems to be policymakers’ folly as we see more web3 entrepreneurs migrate out of the country to global markets which already have started defining policies, regulations, tax holidays and investment guidelines for web3 startups. Those kind of Ease of Doing Business with a clarity of regulatory stance is important, and not the Damocles sword, double-edged with high taxation and fickle policy changes.
The Reserve Bank of India (RBI) has repeatedly expressed its apprehensions regarding the potential negative impact of cryptocurrencies on the Indian economy. The Indian government holds the view that a unilateral ban or regulation would prove ineffective due to the borderless nature of cryptocurrencies, and that international collaboration is essential to prevent regulatory arbitrage in this arena.
India at the helm of the G20 presidency, continues to maintain a static stance on cryptocurrency governance. In the face of regulatory uncertainty, the country's crypto industry grapples with challenging tax regulations. It's important to note that the G20 lacks the authority to enact enforceable financial regulations.
The silence disruptor nation in this global story might be the US. It may find it challenging to disrupt its own domestic crypto market for several reasons. One key factor is the United States' commitment to principles of free markets and free speech, which extends to its stance on cryptocurrencies. Moreover, the crypto industry has garnered substantial support from influential figures and institutions within the country, making it a formidable presence. Additionally, the U.S. may be cautious about taking drastic measures against cryptocurrencies, given the potential impact on innovation and the risk of stifling technological progress. This apparent double standard between its enthusiasm for crypto and the fall of crypto exchanges highlights the complexity of the issue and the delicate balance the U.S. must strike between regulatory oversight and preserving the ideals it champions. Irony is that cryptocurrencies like Bitcoin originated from the US, with a desire for financial independence and skepticism about governments' fiscal stability. Emerging in 2008 after the global financial crisis, they offered a decentralised alternative to traditional systems, aiming to counter centralised control and concerns over fiscal mismanagement.
Amidst this turbulent journey, the cryptocurrency market has exhibited erratic performance, yet optimism prevails in the quest for a robust use case or the revelation of missing components. Speculation abounds that only a handful of crypto assets will endure within highly regulated exchanges, and the final verdict on this matter may hinge upon the outcome of the upcoming Indian national elections in the middle of the next year. However, this scenario could potentially change should the G20 and IMF establish a more solid consensus beforehand. The Financial Stability Board (FSB) and the IMF have recently disseminated a synthesis paper on the regulation of crypto assets to G20 member nations, aiming to provide deeper insights into a comprehensive strategy for countries seeking to incorporate virtual digital assets into their financial systems.
As India charts its course through this complex landscape, it must take into account the broader global context. The G20's cryptocurrency regulations and the IMF's cryptocurrency framework will unquestionably have an impact on India's choices as it seeks to find equilibrium between fostering innovation and implementing regulatory measures. The G20 nations may endeavour to establish a universally recognised regulatory framework for crypto-assets, granting individual jurisdictions the flexibility to impose stricter regulations beyond this baseline, possibly even opting for a complete ban if they see fit. Which direction will the Indian regulatory mood blow?
