Banking Central | India's crypto double standard is hurting investors

India’s crypto investors are a clueless lot. On one hand, the Reserve Bank of India (RBI) is on a public campaign calling crypto a "clear danger" that has no underlying assets, cautioning investors not to gamble. On the other hand, the government is silent on its legality but busy collecting taxes. Meanwhile, investors desperately look for clarity.

The mess either shows both the parties aren't talking enough other on this issue or, worse, aren't in good talking terms on this subject. More worrying, the ever- ambitious Indian Crypto lobby has hired spin masters who would smartly play up the silence of government, and the taxation as an admission of legality. This leaves the investors with more confusion.

New Delhi doesn't have a clear policy on Crypto transactions. In the past, the government kept saying it will come out with a blueprint soon, except that this never came. In the meanwhile, the government is busy collecting taxes both on the gains and at the source.

This is when the RBI, under the leadership of Shaktikanta Das,  keeps warning investors against crypto transactions. Das' deputies are openly calling for a ban, listing the risks and bigger macro economic risks. This is a clear double standard and gives no clarity to the average-informed, gullible yet greedy investors on the big risks in Crypto.

The central bank warns that Crypto is a "clear danger" that has no underlying assets, and, there will be no regulatory back up to anyone who lose money on Crypto gambles. But the question is, why government is taxing an instrument that the central bank is dubbing as toxic and untouchable for the country's investors?

The RBI's eloquence and Narendra Modi government's dead silence on Crypto regulations don't add up.

For the young, not-so-informed investor, Crypto is like magical stone they heard about in fairy tales, that turns everything into a fortune overnight. For them, it makes sense as wealth build up in equities is a time-taking exercise, real estate assets are fighting demand lull and fixed income instruments are yielding negative rates. The crypto lobby understands this psychology well and is betting big on this.

All the risks that central bank warns of regarding Crypto make immense sense. Crypto has no underlying assets, no legality or regulation and there is high uncertainty. But, the RBI is bound by a 2018 Indian Supreme Court order that cancelled it's circular banning Indian banks' involvement in any Crypto-related transactions. But the RBI top brass has used its public engagement programmes and periodical publications to talk down Crypto.

The only solution for India's Crypto conundrum is quick regulation--or an outright ban. An undecided government has recently issued a consultation paper seeking inputs from various stakeholders on Crypto. Hopefully, this time, it will result in a clear regulation. Till then, the Crypto lobby will continue playing on the investor psychology, while the government is busy collecting taxes on a instrument on which the central bank is losing sleep.

(Banking Central is a weekly column that keeps a close watch and connects the dots about the sector's most important events for readers.)