When it comes to cryptocurrency, India is undoubtedly one of the ace cards in Asia’s crypto hand. As of October 2021, it clinched the second highest cryptocurrency adoption rate in the region, second only to Vietnam.
The meteoric rise of India’s crypto market has translated into a whopping rise in the number of investments in local crypto startups.
In the first half of 2021, these startups had received a total of US$99.7 million in investments, topping the US$95.4 million received in 2020.
What’s even more impressive is that India achieved this growth notwithstanding the rollercoaster ride of the country’s crypto regulatory status. Come December 2021, there is set to be another twist in the tale of India’s crypto regulation journey as the government would be introducing “The Cryptocurrency and Regulation of Official Digital Currency Bill 2021” during the winter at the Parliament.
As of the time of writing, the Indian government had disclosed through a Cabinet note that the bill will be departing from its earlier proposal to ban most private cryptocurrencies.
It would instead be proposing the regulation of these currencies as assets under the purview of the Securities and Exchange Board of India (SEBI). The bill has a somewhat draconian overtone as any violation of the provisions therein would constitute a non-bailable offence which could lead to an arrest without warrant.
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The need for crypto regulation and education
In his keynote address at the Australian Strategic Policy Institute’s The Sydney Dialogue, Indian Prime Minister Narendra Modi emphasised the need for democratic nations to join hands to properly manage the power of cryptocurrency so as to “ensure it does not end up in the wrong hands”.
In particular, Modi highlighted the importance of crypto regulation to prevent attempts by unscrupulous parties from misusing the power of cryptocurrency to mislead youths and crypto traders through over-promising and non-transparent advertising.
He also called for the need for crypto education to educate these groups, not just on the pros of cryptocurrency, but also its potential dangers.
As the co-founder and CEO of Tokocrypto, Indonesia’s most trusted crypto exchange, I couldn’t agree more with Modi’s assertions. Something as powerful as cryptocurrency requires nothing less than proper regulatory management, which is why we pioneered crypto regulation in Indonesia.
I also concur with Modi’s take on the critical role of crypto education. Lack of education is one of the main stumbling blocks for the development of the domain, resulting in a tendency to resort to sentiment-based investing.
The dangers of this are aptly illustrated by the recent Squid Game crypto token scam which capitalised on the Squid Game hype to attract avid viewers of the show who eventually ended up losing about US$3.38 million to the perpetrators of the scam.
Balancing the two sides of regulation
When it comes to cryptocurrency, there are always two sides to the coin. On the one hand, cryptocurrency stands as a new class of digital assets, allowing more to harness the immense potential of blockchain to facilitate fintech innovation.
On the other hand, there’s no denying the vulnerability of cryptocurrencies to security issues and financial risks, resulting in hackings, frauds and scams.
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Whilst it is perfectly understandable that the Indian government has set out to regulate each and every part of the country’s crypto domain, crypto regulation is very much a double-edged sword.
This was precisely the caution that was sounded by the World Economic Forum (WEF) on the adoption of a restrictive approach to crypto regulation.
It warned that such an approach which “implies imposing more broad restrictive measures that affect the market generally … may be premature and affect innovation which could be of the interest of the nation-states.”
Legitimising cryptocurrency in India, the Indo way
If Indonesia’s crypto regulatory story is anything to go by, the growth of India’s crypto domain is set to skyrocket once it is armed with the gift of regulatory certainty.
In the case of Indonesia, the watershed moment for the country’s crypto domain arrived in September 2018 when the Ministry of Trade enacted to grant official legitimacy to cryptocurrencies in Indonesia by formally authorising the trading of these currencies as commodities.
This was followed by the enactment in February 2019 which established a legal framework for futures trading of crypto assets.
Two years later in December 2020, the Indonesian government further boosted the levels of regulatory certainty in the local crypto domain by enacting the BAPPEBTI Regulation No. 7 of 2020, which sets out a list of crypto assets that can be legally traded in the country.
This brought about a seismic impact on Indonesia’s crypto market. Data collated by the Ministry of Trade indicates that the number of crypto investors in the country had grown by 62.5 per cent in the six months following the issuance of the list, from 4 million people at the end of 2020 to 6.5 million people by the end of May 2021.
In many ways, the approach adopted by the Indian government under the Bill is not unlike the approach adopted by the Indonesian government, which has since June 2021 banned the use of cryptocurrencies as payment instruments while continuing to allow the trading of cryptocurrencies as commodities under the regulatory purview of BAPPEBTI.
Another commonality in the crypto regulatory approaches of the Indonesian and Indian governments is that both envision the launching of their respective central bank digital currencies (CBDCs) further down the road.
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Without a doubt, CBDCs would have a key role to play in the global financial sector moving forward. The benefits of these currencies as evidenced by the results of industry initiatives such as Project Ubin and Project Dunbar include almost instantaneous settlement of payment and remittance transactions as well as seamless end-user transaction experience.
From a central banking management perspective, the use of CBDCs could facilitate the tracking by central banks of the financial transaction patterns of the residents of their jurisdictions including both intranational and cross-border transfer of funds. This would help these banks with the devising and management of their respective monetary and foreign exchange policies.
In the context of India’s CBDC, the fact that the Bill provides for the development of a “facilitative framework for distributed ledger technology” denotes that there is a fair chance that the CBDC set to be introduced by RBI will be blockchain-based, though only time will tell.
What is certain, however, is that the introduction of a CBDC by a government would at the very least serve as a tacit recognition of the potential of digital currencies.
Having been a crypto advocate in Indonesia since 2016, my personal experience points to the fact that crypto regulation is the direction in which the industry should strive towards as it is the only sure-fire way for cryptocurrencies to gain legitimacy, thereby facilitating the integration of these currencies with the conventional financial sector. In turn, this would pave the way for their mainstream use and acceptance.
With India set to be joining Indonesia, Singapore, Japan and South Korea soon as Asian countries which have introduced crypto regulations for their respective jurisdictions, this would bring us a step closer to having a region-wide recognition of the legitimacy of cryptocurrency, which certainly bodes well for the prospects of the long-term sustainable growth of the crypto domain in this part of the world.
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