In December 2017, the finance ministry said cryptocurrencies are neither currencies, nor authorised by the Reserve Bank of India (RBI). Then, last year, the RBI made it near-impossible to trade in cryptocurrencies.
Not only this, a finance secretary Subhash Chandra Garg-led panel is finalising its draft report on regulating cryptocurrencies.
One thing is clear, it is difficult to regulate cryptocurrency, or even want to regulate cryptocurrency, under the following premises:
1. Tax evasion
2. Money laundering
3. Retail investors’ economic interest
4. Cannot track where INR goes, disrupts monetary policy
5. Could replace INR as a sovereign currency
6. I don’t think it will survive, so why bother?
7. It’s a ponzi, scam, fast money, gambling, etc
8. Media tells me it is used just for terror financing and drugs
9. Only millennials care about it, like a fad
Points one to five are genuine issues, especially within India . Points six to nine are however subjective. Let us dive deeper into these issues.
Tax evasion: Let’s start off by quoting the benchmark here — Under five percent of Indians pay tax today, and most of these are at source. This will not change. Taxing crypto is not difficult, as most countries are figuring out. In fact, imagine the amount of tax revenues that you can get from investors and corporates?
Money laundering : India is still a cash-rich society, even after demonetisation. Cash to crypto is a real problem, and from anecdotal remarks apparently, many Indian crypto institutions have been guilty on this front. However, preventing cash from getting into crypto is a regulatory and judicial problem. Globally, crypto is a speck within the dust storm that is fiat, in this department.
Retail investors’ economic interest: In other words, people can lose their hard-earned income in such risky investments. Quoting the benchmark again, Indians can today invest their entire incomes into equity, and technically equity can also result in huge losses. I don’t disagree that crypto is more volatile than equity, however, people should be able to judge their risk appetite for themselves.
Tracking INR: Indian rupee is not freely transferable like Dollar, Pound or the Euro. There are limits on how much people can send out of the country, and with a clear rationale. Now, crypto is decentralised (at least bitcoin, mostly) and one can digitally transfer it anywhere in the world. Converting rupees to crypto outside India flouts FEMA regulations, if not tracked. However, this is still a regulatory issue, not a crypto issue. The government can clearly track crypto and its users - how else did 50 thousand people in India get tax notices in 2017-18?
Sovereign Currency: Bitcoin was originally developed as a peer-to-peer electronic cash that could disrupt some existing fiat currencies. It has however transitioned into a store of value rather than a currency. In other words, it is more like gold than the Indian Rupee.
So, the real objective issues around crypto can be addressed and just requires an understanding of the technology, regulation, and judicial scrutiny. Let’s draw up a regulatory and licensing framework and let people operate within that, and impose strict judicial process against offenders.
Points six to nine, as I mentioned above, are subjective. How do you know crypto is here to stay, it’s not a scam and the media narrative? It just feels like quick money and a millennial fad.
Crypto is all about adoption. Supply-demand dictates its price. There is no asset backing it. It will succeed if enough number of people believe in it. India should, therefore, ask: what are other countries, corporates, investors, societies doing? (I absolutely hate this follower mentality, but that's a different topic altogether)Japan issues licenses to crypto exchanges. As do USA(New York), Thailand, Philippines, Malta, Australia to name a few United Kingdom’s Financial Conduct Authority(FCA) has a regulatory sandbox for crypto start-ups Switzerland has created an entire crypto valley! Fidelity ($7tn asset manager) is getting into crypto trading Goldman Sachs is an investor in Circle and BitGo IMF’s Chairman Christine Lagarde (also, nominated for European Central Bank’s Presidency) has acknowledged crypto’s potential influence AT&T now accepts bitcoin as payment for monthly bills Facebook has just forged a multi-institutional partnership to launch its own cryptocurrency$1 in bitcoin on 1 January 2016 would have given you 1000 times by June 2019. Sensex would have given you around 1.5 times Forbes research has found that around 30 percent of the age group 18 to 34 prefer bitcoin over stocks. Over 65 percent of India’s population is under 35. Think about the positive messages you can send them by being proactive on crypto I can go on, but I think this clearly shows that adoption is truly gathering pace, which implies more and more people are believing in it, and the Indian media narrative is completely lopsided, misguided and just wrong.
In the last year, since I quit my investment banking job, I have been to San Francisco, New York, UK, Switzerland, China, South Korea, Singapore, Malta, and the sense is overwhelmingly positive! While there are issues that need to be resolved, no one has denied their citizens the right to invest in crypto (with or without regulations). Except for China, where the ban has not stopped the trading going underground and OTC.
The CEOs of Google, Microsoft, Nokia, MasterCard, Adobe are all Indian. These were some of the best companies to come out of the internet age that we did not capitalise upon. We now potentially stand at the cusp of the next such age of digital assets.
We can still make this happen before it is too late.
India — please wake up.
Prashanth Swaminathan is an alumnus of IIT Guwahati and IIM Calcutta, and spent 10 years in investment banking at Morgan Stanley London before setting up an EU cryptocurrency exchange, XDAT.
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