From opposing to regulation: Is there a mood swing for crypto in India? Here’s what expert says

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Cryptocurrencies, simply called cryptos, have rapidly gained traction among the millennials and Gen-Z as an asset class. They have attracted investors at a higher pace in comparison to traditional investment options like stocks, gold, bank deposits, and real estate. The new age investors see this alternative asset class in the form of digital tokens as riskier but better rewarding. However, the prolonged crypto winter beginning at the late end of 2021 spooked the markets, while some ground has been gained lately.

Alike the rest of the world, cryptocurrencies emerged as a fad in India in 2009 with the introduction of Bitcoin. The first commercial transaction took place in 2010, followed by the first cryptocurrency trading platform in 2013. Over the past few years, it has garnered a significant following and interest in India. According to industry estimates, around 20 million cryptocurrency investors are expected to exist in the country.

Last week, Bitcoin jumped more than 140% this year to outstrip other investments like stocks, and gold, and optimism for further gains is high. Its stellar performance came after a turbulent period for the token that has rebounded on expectations the Federal Reserve will cut interest rates and hopes of greater demand from exchange-traded funds.

Speaking to LiveMint, Winston Hsiao, an active crypto trader who founded Taiwan’s first Bitcoin exchange BTCEx-TW in 2013 said the evolving landscape shifted between banning crypto, to imposing tax deducted at source and on capital gains.

He emphasized investor protection and preventing illicit activities by requiring Virtual Digital Assets (VDA) providers to register with the Financial Intelligence Unit (FIU) and comply with the Prevention of Money Laundering Act (PMLA).

“Awareness about cryptocurrency has been increased in India through educational efforts by many operators like XREX’s partner in India, A2ZCrypto, who placed a huge focus on promoting the correct understanding and mindset toward blockchain technology,” the cofounder and CRO to XREX Inc. told us.

It is pertinent to note that there is no central body that regulates the use of cryptocurrencies as a form of payment in India. Also, there are no established guidelines or rules governing the resolution of disagreements when using cryptocurrencies. Hence, cryptocurrency trading is done at the investor’s own risk.

The discussion around the legality of cryptocurrencies in India has intensified since Finance Minister Nirmala Sitharaman suggested taxing digital assets. According to the Union Budget 2022, the Indian government announced a 30% tax on cryptocurrency gains and a 1% tax withheld at source.

“The Indian government has expressed its concerns about the potential for money laundering and illicit activities, lack of central control and regulatory challenges, volatility and investor protection issues,” Hsiao said.

He believes that these issues can be solved by having responsible operators who actively take the step towards building solutions such as escrow services to provide users an ease of mind when transacting, or operators who put in additional effort to be regulated by regulators abroad.

The XREX cofounder asserted that the growing acceptance of cryptocurrencies may impact traditional banking systems in India as crypto gains acceptance in terms of improved efficiency throughout the finance sector, and there is a possibility of integrating cryptocurrencies into mainstream banking.

Hsiao further mentioned the risks associated with the widespread adoption of cryptocurrency in India. “Regulatory uncertainties are the biggest risk as it is confusing to the commonfolk, leading to market instability and information asymmetry. Also, the potential for fraud and scams in the absence of clear regulations is another risk,” the crypto expert said.

However, he exuded confidence that the continued innovation and growth in the Indian blockchain ecosystem, especially quality startups, and protocols can take on the global stage. “Integration of cryptocurrencies into mainstream financial systems, with room for both traditional and blockchain finance to play important roles in the ecosystem,” he added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 08 Dec 2023, 02:19 PM IST