Embracing the new era of crypto - the India story

We're living in exciting times for crypto in India. We're seeing several billions of dollars of daily trade volumes, a burst in the number of crypto and blockchain startups in the country, and interest in crypto at new highs. Regulators — always cognisant of the revolutionary potential of blockchains — are warming up to the diversity in the crypto market. 

India is embracing crypto

Let’s capture this moment that throws light on how we fared so far. As a country, we’ve had an exhilarating journey, where we’ve had to break free from our fixed mindsets that jaded our perspectives on crypto and the truly transformative technology that underlines it.

I believe since the pandemic, the voices of the Indian crypto community have been heard by our policy regulators and law enforcement agencies, who perhaps got a glimpse of how easy and efficient things could be if we as a country innovated and learned more about crypto and blockchain.

There’s been recognition and acknowledgement of our goal to highlight the true value crypto represents in India. The Supreme Court, while lifting the RBI banking ban in March 2020, prepared the ground for crypto adoption when it stressed ‘alternative regulatory measures’ rather than a complete ban for regulating the risks associated with crypto trading. The Indian crypto community, despite the government’s well-intentioned scepticism, has been growing ever since.

Thus, from a two-year lull (though we never stopped talking about crypto), suddenly everyone was talking about Bitcoin in 2020. In 2021, even NFTs are being discussed as a viable asset class investment option in Indian crypto circles as people realise more crypto use cases in real life.

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The current state of crypto space in India

The Indian crypto industry has grown manifold since the lifting of the ban. A hub for digital innovation and startups for decades, India is all-embracing and forward-looking amidst the lack of regulatory clarity. The Chainalysis 2020 Geography of Cryptocurrency report ranked India 11th in the list of global crypto adoption, given its user base of 10 million crypto users trading in volumes reaching up to $350 million on a daily basis.

Indians have traditionally invested in gold and deposits. Bitcoin is becoming the new gold with millennials who prefer it over the gold. About 55 percent of the total $1.5 billion worth of crypto assets in India are held as Bitcoin. The tech-savvy young crypto enthusiasts closely are in the same camp as US tech giants like Tesla and Paypal that have invested in Bitcoin. 

With global crypto-assets over a total worth of $2 trillion, global crypto adoption is far from slowing down.

A considerable number of corporations are allowing transactions in crypto and offering crypto assets to their consumers. Bitcoin enjoys a legal status in many developed countries like the US, Japan, and the UK. While countries have accorded cryptos the status of a digital asset, there are instances where the income from cryptos is treated as a capital gain and is taxable.

Switzerland hosts a number of Bitcoin ATMs where citizens can make purchases. In other countries, ‘sandbox’ regulations are in place that provide a thriving environment for crypto businesses without excess curbs.

By placing regulations India would significantly benefit by limiting the vulnerabilities and delimiting the potentialities of cryptocurrencies.

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Developments influencing the renewed talks

Globally, cryptocurrencies are finding utility in remittances, trading, lending, capital funding and transfers. India receives the largest amount of inward remittances globally. Startups often crowdfund their resources.

Besides impacting fundamental lending, trading and transfers, cryptos can provide exciting use cases in crowdfunding and remittances and so on. India has dealt exceptionally with novelties — be it IT or equity — in the past. It can adopt the same thoughtful approach to cryptos to amass promising wealth creation opportunities in the near future.

Talking of legislation, the proposed Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is deemed to have its focus on India’s own digital currency and the scope of experimentation in crypto assets.

Recently, the Corporate Affairs Ministry amended Schedule III of the Companies Act, making it mandatory for companies dealing in digital assets to disclose their financial statements with regard to the profit or loss incurred in crypto dealings, the number of crypto assets and deposits held. Commercial banks, via consortiums, are ready to upholster the crypto fabric over traditional banking and payment solutions.

These can definitely be the next clue to solving the puzzle ‘what force does crypto reckon in India - a digital asset, legal tender or commodity?’

The crypto community, on the other hand, is working to assist young users with a better understanding of crypto by debunking myths and rolling out new crypto-related projects. The community is trying to push the perspective of crypto as a digital asset in government corridors as well as via continuous social media presence and proposals to the ministries.

Both the Indian crypto community and the policy regulators have been investing significant time to understand this space better, so our government can begin regulating this promising transformative technology, further boosting belief in the innovation that crypto represents.

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Recommendations from a stakeholder

For any novel tech to become mainstream, it needs to be defined, enabled and encouraged while being introduced and allowed to thrive in a particular context. There are quite a few propositions from the community which the government can put into force.

For instance, the government needs to define cryptos as digital assets like gold and marketable securities and not as currencies (which renders RBI’s market manipulation plea redundant). As already seen, this approach has been successful in many nations.

Next, the crypto exchanges can be granted recognition by introducing a system of checks and balances along with an appropriate registering system. The FDI cap along with approval to domestic exchanges can save billions of dollars of revenues going to foreign exchanges. 

The Indian Accounting Standard would need to classify cryptos as current assets on balance sheets. Provisions in the direct tax and GST laws regarding the treatment and disclosure of crypto assets could add crores to the government treasury. Anti-money laundering regulations and Financial Action Task Force (FATF) could provide the necessary safeguards.

For crypto traders and holders, procedures such as KYC verification via the exchanges should be mandated such that every crypto transaction is reported for taxation. A CSR policy for crypto exchanges and corporations dealing in crypto assets could further ensure transparency and accountability in business and lastly, the government needs to involve all the stakeholders of the crypto industry to provide an environment conducive to the industry. 

The government needs to push structural as well as institutional changes to better embrace crypto adoption. Notwithstanding that, it is pertinent that cryptocurrencies soon fall under the regulatory ambit for them to acquire legitimacy and for India to embrace crypto even more broadly, putting India back on the world map.