Cryptocurrency Conundrum: Regulatory clarity is the need of the hour

Bitcoin, the oldest cryptocurrency, was trading at Rs 4.40 lakh on March 22 when for the first time, a 14-hour voluntary curfew was announced by the government. Almost one year later it is trading at around Rs 42 lakh. It won’t be an exaggeration to say that Bitcoin has been on a dream run, growing by over 850% in a year. But the status of cryptocurrencies in the country is ‘complicated’.

Given that cryptocurrencies work on the principle of peer-to-peer transfer without any regulatory body in between, the growing popularity of cryptocurrency resulted in discussions related to its regulation. In January this year, the government proposed The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, to “create a facilitative framework for an official digital currency issued by the RBI” and “prohibit all private cryptocurrencies in India.”

Though the Bill gave an initial impression that there would be a complete ban on private cryptocurrencies, different interpretations have been floating around since then. While some fear a complete ban, many are wondering what the term “private cryptocurrency” means.

Finance Minister Nirmala Sitharaman recently said there won’t be a blanket ban. She also said RBI will be taking a call on the regulation part. While all crypto lovers viewed the FM’s statement as an encouraging sign, there are various media reports suggesting that RBI may continue with its stance of a complete ban on virtual currencies.

With different views floating around, it is difficult to decode the shape of final regulations. We have to wait and watch whether it will classify different aspects of cryptocurrencies – as currency, asset, utility and security- or will it be a blanket ban on all cryptocurrencies.

SC Garg, Former Finance Secretary who also headed the inter-ministerial committee on cryptocurrencies, told Money9 that “it was a balanced report, which said outlaw the currency aspect of it. But promote the other aspects of cryptocurrencies, especially using the key technologies of blockchain and cryptography”.

Around 10 million people have invested in cryptocurrencies in India and it is time the government comes out with final regulations after discussing with various stakeholders. We can also take a leaf out of the USA’s book where crypto laws are more defined. For example, The Commodity Futures Trading Commission regulates its virtual currencies as commodities and the Securities and Exchange Commission regulates if it is classified as a security.

While we can only wait and watch till the regulations are announced, one thing is clear that if the complete ban comes through, there will be again an exodus of crypto exchanges and investors from India. The situation will be similar to what happened following the RBI’s ban in 2018, which was later declared unconstitutional by the Supreme Court.

A silver lining surrounding this conundrum is that there has been a general consensus on the future of blockchain technology. There is huge scope for potential application of smart contract technology, which can apply to almost any field of business, making processes much simpler and efficient.