India's crypto space is growing at a rapid pace. Challenges in building a clear regulatory architecture are enormous, however. While the price of Bitcoin has gone to a stunning $80,000 per coin recently, thereby pushing the adoption of cryptocurrencies up in the country, the government still seems to be dawdling before giving clear and consistent regulations. This ambiguity pushes the market into further uncertainty, even when India is one of the most advanced countries in the world in terms of crypto adoption.
There is now immense pressure in the country to make sure that innovation is indeed balanced with proper oversight. Steps to regulate the market need to be followed much more so that the growth of this industry can be well-guided by a really robust framework that can keep consumers secure. The longer India waits, the bigger will be the increase in value of Bitcoin and other cryptocurrencies.
Important legal and regulatory milestones have characterized India's journey into cryptocurrencies. Way back in 2018, it banned all crypto transactions for reasons of tax evasion among several others mentioned above. However, the Supreme Court reversed this ban in 2020, and with that, the waving of a red flag started the rise of crypto trading in the country. Still, the regulatory framework is somewhat hazy. The boom in the market led to the government proposing a taxation regime in 2022; however, issues persist with the formalization of a coherent and forward-looking policy.
India proposed the Cryptocurrency and Regulation of Official Digital Currency Bill in 2021, but yet the bill has not moved any further in the Parliament to date. Because of this, cryptocurrencies are left in legal limbo. Finally, in 2023, the Finance Ministry took a much more aggressive approach than this by attaching virtual digital assets (VDAs) to the Prevention of Money Laundering Act, making crypto businesses abide by anti-money laundering and know-your-customer regulations.
In 2023, FMCBGs endorsed a roadmap for the regulation of crypto assets under India's presidency of G20. The roadmap advocates that there shouldn't be a blanket ban but comprehensive regulatory oversight should replace this solution. These nations looked into the role of IMF and FSB in calling for coordinated global actions regarding the regulation of crypto. All these recommendations were consolidated in The New Delhi Leaders Declaration, which also called for supervision over crypto-asset activities, markets, and stablecoin arrangements.
As Brazil prepares to host the next G20 summit, everyone will be keeping watch to see if India can use this presidency effectively to make significant progress toward crypto regulation. Since matters of the future of crypto are still pending in India, a deadline for establishing a clear framework for regulation has arisen by the end of this year.
India's crypto regulatory scene remains a multi-player game involving several key players till 2024. Reserve Bank of India continues to sound cautionary note regarding the risk that cryptocurrencies pose. According to the RBI, crypto is speculative and may prompt a disruption of monetary policy. Reserve Bank of India wants to mitigate the risks and is urging for the introduction of a central bank digital currency or CBDC as a way forward to an even safer alternative.
Another is the Securities and Exchange Board of India (SEBI). This organization was one of the first to push for some of the regulatory proposals concerning cryptocurrencies. This year, 2024, SEBI proposed a framework for multi-regulator oversight over cryptocurrencies. This shows how complex managing cryptocurrencies has become and that it is something much in need of specific regulatory bodies to deal with aspects of digital assets. SEBI has also made proposals such as clearly stating which of digital assets are utility tokens and security tokens, transparency in the disclosure statement, among others, and ensuring proper cybersecurity of exchanges.
The Ministry of Finance is also involved, specifically in taxation. India has levied a tax on the income of cryptocurrency at 30% and an additional 1% TDS levied on large transactions. This approach shall look to include crypto within the formal economy while being compliant with fiscal obligations. All these taxes have raised concerns regarding stifling innovation and market growth.
India does not have a comprehensive crypto regulatory framework. This leaves the market exposed to fraud, tax evasion, and manipulation of a market. According to Himanshu Maradiya, the Founder of CIFDAQ, in India, it was already expected that a discussion paper would be released in September 2024 to state the policy on crypto; however, this did not appear. Global developments such as the pro-crypto position of US President-elect Donald Trump have amplified this urgency-most specifically, his push for policies that are said to accelerate worldwide crypto regulation. India is also likely to prioritize discussion over its crypto paper in 2024, which aligns with its G20 commitments and the continuously growing demand for a clear regulatory path.
India is not building its crypto regulations in a vacuum. The G20, at the initiative of the Indian presidency, has helped create an international framework of coordination on crypto regulation. The plan adopted there pushes member states towards regulation and oversight of the market rather than outright bans on crypto. India's involvement in this global discourse may shape its future regulations to be at par with global standards.
Edul Patel, CEO of Mudrex shares his views with Benzinga and said, "The Trump win may make India push the rate of crypto regulation in a quick-track schedule and utilize that substantial talent pool available in the nation to become a leader in the crypto space. The FIU has already started working on a consultation paper and this worldwide momentum may ensure taking swift action.
Although India has exhibited good progress, regulation of cryptocurrencies remains challenging for innovation versus financial stability. The government seems to be aware that the crypto market is booming, but it is a challenge to implement a regulation that stays strong enough to prevent misuse but still doesn't stifle technological development. Given the fast-changing nature of the crypto space, the regulatory framework should be adaptable-fostering innovation while strengthening investors' security. Also, the ambiguous regulations leave many opportunities for market manipulation and fraud, which may cut the sector off its entire potential.
Crypto remains one contentious issue with India's legal status. They are not considered legal tender, but trading and holding of crypto is permissible, though uncertainty pervades the lack of a well-defined license system for exchanges. The SEBI is working towards this with the help of a multi-regulator framework that would categorize and set guidelines for each type of digital asset. However, measures such as these would succeed only if they can walk the tightrope between market freedom and protection for investors and alleviate ambiguity surrounding the status of crypto vis-à-vis law as a crucial measure that will attract foreign investment and give businesses and investors the much-needed confidence.
The future moves of India should focus on the following:
India must place a final regulatory framework for supporting the emerging crypto. Most importantly, it must clarify the tax regime with respect to the classification and taxation of digital assets, as well as market operations and resolve issues associated with the Cryptocurrency Bill.
The updated regulations for 2024 are, in essence, a huge step forward in reducing fraudulent activities and boosting investor confidence, especially considering that issues of proper taxation, AML/KYC compliance, and digital asset classification are now taking shape. Still a very thin line between innovation and the need to ensure that the market is safe and secure for all participants.
Further, India should continue to engage with international regulators and standard-setters to enable the regulatory architecture in India to keep up with the best in the world. This will ensure that India emerges as a global centre for innovations in cryptocurrency while protecting the interest of investors.
The market will continue growing and the world regulatory landscape will be changing fast; it will, therefore, be well in India's interest to act fast in consolidating its position as a world leader in the cryptocurrency space. As the global rate of crypto adoption increases and there is every indication that the G20 will encourage coordinated oversight in the respective countries, regulation of crypto in India will determine the future of digital assets.
The country needs to be decisive in taking clear regulatory steps with the G20 roadmap, the upcoming discussion paper, and overall global developments. India can emerge as a leader in the market for cryptocurrencies while ensuring that no danger lurks around the corner and investors are safe.