By Aruna Sharma, Practitioner Development Economist and Retd Sec to GOI and Jayjit Biswas, Founder Elite Web3 Forum
The new found global interest in the crypto the virtual digital asset with phenomenal jump in the value of the established Bitcoin or other similar regulated virtual digital assets in other countries. The block chain technology popularized by Crypto is finding more and more use cases. However, India is still ambiguous of its stand in relation to firm up the regulations around virtual digital assets.
In India, the crypto is not banned (SC judgment) but no policy to regulate the same. Many a times the finance regulator, RBI issues directions for banks either not to or be cautious of engaging in crypto transactions. The confusion that the CBDC (Central Bank Digital Currency) will be the official crypto is complete misnomer as it is just a digital print of the currency with zero enhancement of its value. Thus, it is digital currency with a fixed value with no possibility of a drop or gain. The crypto is definitely not a ‘private currency’ as the regulator will like to give the impression but is virtual asset in digital form that can be leveraged where there it can be seen as an opportunity for investment for gain or loss. Yes it has an element of speculation similar to investment or trading of stocks in normal share market.
On date there is no regulator, but crypto is being traded reaching a staggering amount of US$6.6bn by 2024. This growth is expected to continue with an annual growth rate (CAGR 2024-2025) of -2.44%, resulting in projected total revenue of US$6.4bn by 2025. Thus, non regulation of crypto exchanges who registered only with FIU (Financial Intelligence Unit,) for the limited purpose of regulating cross border transactions, is not a comprehensive way for regulating this virtual digital asset. There is no proper regulator to enable the exchanges to register and abide by KYC of their customer, ensure only digital payment mechanisms, maintain data only in block chain (there has been case of an exchange maintaining data outside the block chain and resorted to money laundering), strictly adhere to advertisement code so as not to mislead and constant analytics to transactions to raise red flag if resorting to money laundering.
India cannot continue to ignore regulating the crypto or virtual digital asset that is very fast getting traction among the investors. It is no longer just the speculative investment but emerging as asset class across globe not just among investors but also the government treasury. EU through MiCA was the first to create a framework to ensure protection to investors and have systematic regulation. Regulation ensures detect and stop illicit crypto uses. US did announce new framework in 2022 and declaring it as asset class regulation is therefore with SEC (Securities and Exchange Commission) and also with the CFTC (Commodity Futures Trading Commission).
The crypto exchange has a compliance regime. Now the courts have also passed their judgments where the Ripple’s sale of XRP was securities only when sold to institutions. The jurisprudence is further getting established allowing converting its Bitcoin to ETF Trust in 2024 and also that of Ethereum Spot ETFs, thus the Crypto as asset class is establishing itself in the regulatory discipline. Canada became the first country to approve Bitcoin exchange traded fund (ETF) , with several trading on the Toronto Stock Exchange. Japan has come up with more holistic approach giving this virtual asset as a legal property and classified as Payment Services Act (PSA) and all the exchanges are mandatorily to register with FSA ( Financial Services Agency) thus ensuring AML (Anti Money Laundering and CFT compliances. The registration is with JVCEA (Japanese Virtual Currency Exchange Association) and it is mandatory for all the exchanges to be its members. For taxation purpose the gains are treated as miscellaneous income. Australia is on similar lines and Singapore treats it as property.
The concern is India after the ban put by RBI was removed by the Supreme Court is still in the unregulated zone thus it is neither regulated nor banned in the sense non operative in the country. The Crypto exchanges are subjected to taxation on their fees. 30% flat tax plus surcharge on the investments made by crypto and mandatory 1% tax deduction at source (TDS) by exchanges and no set off of losses with gains in crypto trading in India. Thus, this taxation was almost seen and assumed to be a move by GOI to control the trading volume in Indian exchanges and discourage Indian people to enter crypto transactions. But irony is the flood gate of Peer to Peer or P2P transactions are wide open which does not attract taxations but very risky due to various ways of crypto scams.
The citizens are investing in crypto as their asset and exchanges are abiding by the tax regime but falling short of issuing the status of virtual asset and being regulated as asset class. The recent WazirX fiasco also calls for comprehensive crypto regulation to protect investors funds also to strengthen the legal ecosystem around Indian FIU registered crypto exchanges. Not regulating in proper sense and waiting for global regulations is just proving that Indian Government is following Lead Follow mechanism to establish crypto laws to prevent the investors from being protected and the exchanges being ensuring KYC, AML etc. protocols.
As we know delayed justice is similar to justice denied and in same like delayed regulation will deny the prosperity of flourishing Indian Web3 and blockchain eco system at global level and Indian Web3 players will definitely miss the bus as they we did in case of post invention of internet and Web2.