Bitcoin has reached a new milestone, surpassing $72,000 per unit for the first time, marking a nearly 70% increase in value this year. This surge is largely attributed to substantial investments in US exchange-traded funds. Bitcoin is not alone in its ascent; other cryptocurrencies such as Ether, Solana, and Avalanche have also seen significant gains. This resurgence in the cryptocurrency market is likely to draw attention once again to Indian policymakers and the Reserve Bank of India regarding their regulatory approach.
Amid a broad rally in the crypto markets, despite a sluggish Asian trading session, investors have infused nearly $10 billion into new Bitcoin ETFs in the US. This influx of investment has prompted two major stock exchanges to consider including cryptocurrencies within their regulatory frameworks. The London Stock Exchange has announced its readiness to accept applications for Bitcoin and Ether exchange-traded notes, while Thailand’s securities regulator has made provisions for retail investors to purchase overseas crypto ETFs.
READ | Trade deal with EFTA signals India’s globalisation push
India’s stance on cryptocurrency
In contrast, India has hesitated to regulate cryptocurrency assets, maintaining its stance that they are not legal tender within the country. In November 2023, the Supreme Court declined to hear a petition demanding governmental guidelines for the trading and mining of cryptocurrencies. Without central regulation or dispute resolution guidelines, cryptocurrency trading in India carries a high risk for investors.
To discourage cryptocurrency trading, India has imposed significant taxes on crypto asset transactions. The country has a 30% tax on cryptocurrency gains and a 1% tax deducted at source. This is in stark contrast to India’s leadership role in the G20 last year, where it was agreed to pursue global regulation of crypto assets, acknowledging the potential macroeconomic instability posed by cryptocurrencies not backed by sovereign assets.
Surprisingly, India’s last significant attempt to regulate digital assets was in 2021 with the introduction of the Cryptocurrency and Regulation of Official Digital Currency Bill in the Lok Sabha. This bill sought to establish a framework for a digital currency issued by the RBI. However, progress has stalled, with the government emphasising the need for international cooperation to legislate on borderless crypto assets. The government had plans to introduce new regulations during the Winter Session of Parliament, but these were delayed. Meanwhile, the RBI’s development of a Central Bank Digital Currency is proceeding cautiously.
The current surge in crypto assets underscores the global need for regulatory clarity. The success of Bitcoin ETFs and other technical indicators suggest growing optimism among investors about the future of cryptocurrencies. This optimism is evidenced by an increase in the funding rate, indicating a willingness among investors to pay more for borrowing to invest in Bitcoin.
Regulatory challenges persist worldwide, with countries divided over the decentralised nature of cryptocurrencies. While some US states, such as New York, have embraced cryptocurrencies, the legal and regulatory landscape varies significantly across jurisdictions. The European Union has adopted a relatively lenient regulatory stance, whereas the UK treats cryptocurrencies as property, not legal tender, and taxes them accordingly. Meanwhile, several countries have outright banned crypto assets, including China, Bangladesh, and Egypt.
The environmental impact of cryptocurrency mining has emerged as a significant concern globally. The process of mining, particularly for currencies like Bitcoin, requires substantial computational power and energy consumption, leading to a considerable carbon footprint. This aspect of cryptocurrency has prompted debates about the sustainability of its growth and the urgent need for adopting greener technologies within the blockchain industry. As cryptocurrencies gain popularity, the call for eco-friendly mining practices and the integration of renewable energy sources becomes more pronounced, challenging innovators and regulators alike to balance economic interests with environmental responsibilities.
Furthermore, cryptocurrencies hold a unique position in emerging economies, where they offer an alternative to traditional banking systems and financial inclusion for the unbanked population. In countries with volatile currencies or limited access to banking services, cryptocurrencies can provide a stable and accessible means of transaction. However, the lack of regulatory clarity and potential for misuse necessitates a cautious approach. Policymakers in these regions face the challenge of harnessing the benefits of cryptocurrencies while protecting consumers and ensuring financial stability.
As investor interest in cryptocurrencies peaks, it is crucial for India to reconsider its regulatory stance. An unregulated crypto space poses risks, despite the government’s desire to protect entrepreneurs and investors. The Cryptocurrency Bill, still in the legislative process, requires expedited action. However, given the evolving global regulatory landscape, India is likely to observe international developments before finalising its own cryptocurrency regulations.