Testing the waters

With a Parliamentary committee on finance finally coming around to having a meeting with relevant stakeholders in the Indian crypto industry, it would seem that the government is finally making good on its promise to make sense of cryptocurrencies. The current scenario appears to be mostly moving towards regulation, with an all-out ban being deemed impractical given how widespread the selling and buying of cryptocurrencies is in India. Just how widespread is the crypto craze in India? According to the crypto broker platform BrokerChooser, India has over 10 crore crypto owners as of the year 2020, the highest in the world. To give some sense of how large a number this is, the country just behind India in the ranking, the US, has just 2.7 crore crypto owners in comparison. And you can't typecast India's crypto players as excited teenagers with spare pocket money or millennials flying high on fast and hard investments. If recent news reports are to be believed, even NRIs are considering the use of cryptocurrencies for remittances, as the use of a crypto-wallet is less cumbersome as compared to more traditional methods of sending back money to India. Cricket too is entering into the mix, with IPL teams reportedly considering the use of fungible fan-tokens in the future. These tokens will not only allow fans to get expected perks like fan merchandise but could also allow fans to become more direct stakeholders in teams with the use of these tokens, engaging them in major decisions relating to their favourite teams. But with the good comes the bad. India is quite concerned with how cryptocurrencies are being marketed in the nation to unsuspecting youth. Advertisements playing during cricket matches make cryptocurrencies look much safer as investments than they actually are. Celebrities have jumped in on the fun too and sell the crypto craze like they are trying to market mutual funds. There is a sense that industry players are trying to obscure the fact that, despite growing popularity, no one is quite sure if the crypto bubble is about to burst in the future. It is by no means too big to fail and the worrying fact that most crypto investors don't understand the ins and outs of cryptocurrencies and blockchains makes such endeavours ideal vehicles for scams as well. And crypto scams are literally a dime-a-dozen. From meme-coins to game-coins and even the disingenuous sounding charity coins, cryptos come in all shapes and sizes and they all claim to be 'going to the moon'. The recent suspected scam of the SQUID meme coin is just one example that garnered considerable public attention. So, what is the government to do? Well, given how unstoppable the crypto craze in India appears, the government has decided to go with the flow and figure out guidelines that can, in theory, at least regulate this volatile industry. India is not going hard on a ban like China and it is not throwing caution to the wind like El Salvador. What it is doing instead is a middle-ground solution. A recent Economic Times report indicated that India could bar the use of cryptocurrencies for actual transactions and would rather treat them as assets like gold, shares or bonds. Apparently, major crypto players in India are also angling for such a development as it would make cryptocurrencies more palatable for regulators who are still quite nervous about letting cryptos into the fold. RBI, for instance, has repeatedly advised caution in regards to cryptocurrencies due to issues of stability and has emphasised the need for a much deeper discussion on the issue of cryptocurrencies and related technologies. This is despite the fact that the RBI itself is in the process of apparently developing its own digital currency. Also relevant are discussions of how cryptos will be brought under an appropriate taxation regime with expectations that the Securities and Exchange Board of India (SEBI) would step in to regulate cryptocurrencies. Nothing is final but it is undeniably certain that crypto owners cannot expect tax-free gains in the future as India moves forward with regulation. All in all, it is an exciting time to be alive. While cryptocurrencies may not replace traditional banking as some dreamers may have hoped for, it is possible that they may hold an important niche in the global economy going forward.