India Won't Follow the US, El Salvador Approach to Cryptocurrency

The government will take a distinctive approach to regulate cryptocurrencies in India that will be different from the western markets, Chairman of the Parliamentary Standing Committee on Finance Jayant Sinha said during an online event. The latest comments from the lawmaker come amid uncertainty among Indian stakeholders due to long anticipation of regulation for Bitcoin and other crypto instruments. The country has a strong base of cryptocurrency exchanges and investors, but it so far has not recognised cryptocurrencies as a legal asset or currency.

Speaking at crypto asset conference HODL – 2021, organised by the Blockchain and Crypto Assets Council (BACC) of Internet and Mobile Association of India (IAMAI), Sinha said that India would not follow the US, Japan, or El Salvador in its approach toward cryptocurrencies.

“Our solution will have to be distinct and unique for India, simply because of our unique circumstances,” the MP and former Minister of State for Finance said.

He also said that the process of regulating cryptocurrencies would involve “stakeholder consultations”, after getting approvals from the parliament.

“It would be good if we have global standards and then if there is something above and beyond the global standards, that is unique to India, that can also be developed and worked,” Sinha said.

The lawmaker also noted that the country needs to consider legislation on cryptocurrencies that keeps national security concerns in mind.

In late January, the government proposed a bill to prohibit “all private cryptocurrencies” in the country and develop a framework for creating an official digital currency issued by the Reserve Bank of India (RBI). Just a couple of days after that bill got listed on the Lok Sabha bulletin, Minister of State for Finance Anurag Singh Thakur said while responding to a question raised in Rajya Sabha by saying that the government “does not consider cryptocurrencies legal tender or coins”. He also underlined that the government would take all measures to eliminate use of crypto assets in financing illegal activities or as part of the payment system.

Those two major activities, along with an earlier RBI's ban on cryptocurrencies that was quashed by the Supreme Court last year, raised concerns among investors in the country.

However, major cryptocurrency stakeholders are optimistic and consider the fresh comments from Sinha as an indication of a positive move by the government.

“We agree with what Mr. Sinha mentioned,” said Avinash Shekhar, Co-CEO of Singapore-based cryptocurrency exchange ZebPay. “India has its own unique strengths and issues when it comes to implementing laws and regulations around crypto and we're looking forward to a regulatory framework that matches these unique needs.”

Shekhar moderated the session with Sinha during the online conference. He expressed the need for an open discussion to address the government's concerns.

Nischal Shetty, CEO of Indian cryptocurrency exchange WazirX, said the demand for cryptocurrencies had been steadily rising in the country and the move by the government could be a significant boost to the crypto ecosystem as a whole.

“We are optimistic and look forward to working closely with the government in regulating crypto in a manner that fosters innovation. We further hope that the government consults with the industry players and takes into consideration their recommendations before finalising on the bill,” he said.

Sharan Nair, Chief Business Officer of Bengaluru-based cryptocurrency trading platform CoinSwitch Kuber, also agreed to the comments made by Sinha.

“The laws around crypto can't simply be replicated from how other countries treat crypto,” he said. “In this process, crypto exchanges like CoinSwitch Kuber are more than willing to work alongside the regulators and policymakers to define laws that keep the nation's interest in mind.”

Similar to Indian cryptocurrency exchanges and trading platforms, global players in the cryptocurrency market are also seeing the country with a massive potential to help grow digital currencies around the world.

“Once we have the regulatory framework for cryptocurrencies in place, the industry will be well-poised for growth,” said Vincent Lau, Managing Director of International Operations, Seychelles-based Huobi Global. “We will continue to evolve our operations to meet the requirements of India's regulatory environment as part of our global expansion strategy.”

Market analysts believe that while it is difficult to come to a judgement simply from the comments made by the legislator, the government appears to be emphasising on a delayed approach to play safe in the field of cryptocurrencies.

“India's hesitation to welcome cryptos is understandable and it will be some time before it becomes widely accepted,” said Fawad Razaqzada, Market Analyst at brokerage firm ThinkMarkets that is based in London and Melbourne.

He added that Sinha merely underlined some of the known challenges that India would face with adopting cryptocurrencies, including issues over governance, taxation and national security.

Edward Moya, Senior Market Analyst at New York-based multi-asset trading firm OANDA, said that India had too much resistance that it would not be one of the first adopters of Bitcoin.

“India is taking a cautious approach to cryptocurrencies and will be unable to create their own since they don't have full capital account convertibility. India has gone from banning cryptos to slowly trying to figure out how they can make it work for them,” he noted.

Rajya Sabha Member Amar Patnaik, who is also a part of the Parliamentary Standing Committee on Finance led by Sinha, stressed on the need for a strong regulatory framework for crypto assets in the country.

“The priority should be to put in a regulatory and innovation sandbox both in SEBI (Security Exchange Board of India) and RBI and see prototype wise how it can marry with the Indian system,” Patnaik said during his session at the conference.

According to various reports, India is said to have about 15 million investors in cryptocurrencies and that number is growing steadily.

Globally, a report by Fortune Business Insights suggests that the cryptocurrency market will grow at 11.2 percent to $1,758 million (roughly Rs. 12,900 crores) by 2027.