Banning crypto not possible as regulation is always behind technology: Manish Tewari

Presently, in India, some of the major crypto exchanges are WazirX, Coindcx, Bitbns, zebpay, CoinSwitch Kuber and Flitpay. The global crypto market capitalisation is valued at $ 1 trillion.

Outlawing crypto assets won't be possible given that laws cannot keep up with advances in technology, said Manish Tewari, a member of the parliamentary committee on finance in an exclusive conversation with Moneycontrol on September 14.

"The reality is that regulation is always behind technology, and crypto today is a reality and banning it won't be possible. If you even ban it, it will run underground, but if the government will regulate it and create a safely regulated environment, it will protect investors and have its own advantages too," said Tewari.

Tewari added that the government should put a legal architecture on crypto assets soon.

"At present, some people are making money, some are losing, and trading is happening in an unregulated environment. I hope after the G20 meetings a consensus will emerge."

Discussions related to crypto at G20

A proposal by the International Monetary Fund (IMF) and G20's Financial Stability Board (FSB) on cryptocurrencies was discussed at the leaders' summit on September 9-10 in New Delhi, a senior government official said.

“One country alone, whichever path it takes, would not be effective. Whatever we do, we have to refer to the global community. The discussion will happen now in our system. It is not an easy one,” the official said. “If any country wants to have a stricter regulation, it can frame a more restrictive one depending on the risk it sees from cryptos. If all countries agree on the same regulation, there will be no arbitrage.”

G20 leaders agreed on the IMF-FSB synthesis paper on cryptocurrencies, including a roadmap that will support a coordinated and comprehensive policy and regulatory framework, said the declaration paper on September 9.

The synthesis paper was submitted on September 7 to the G20 members and discussed at the meeting of finance deputies in New Delhi ahead of the Leaders' Summit on September 9-10.

The G20 declaration further said that the member countries continue to closely monitor the risks of the fast-paced developments in the crypto asset ecosystem.

"We endorse the Financial Stability Board’s high-level recommendations for the regulation, supervision, and oversight of crypto-assets activities and markets and of global stablecoin arrangements," the statement added.

Addressing the media in New Delhi, Finance Minister Nirmala Sitharaman said, "I don't want to get into the debate just now whether crypto will be regulated or banned. The G20 will take a call on that."

The crypto industry is hopeful

According to Rajagopal Menon, vice president at cryptocurrency exchange WazirX, the paper addresses all the concerns that Indian authorities have with crypto, be it monetary sovereignty, financial stability, or bringing in more accountability and transparency.

“It also gives a roadmap for authorities to frame rules. On the whole, the synthesis paper is in the Goldilocks zone of regulation—neither too rigid nor too loose,” he told Moneycontrol.

He added, “Since this report was created at India’s request, we expect the government to take it seriously… We have to remember that baby steps towards regulation have already started with tax imposition and bringing crypto under PMLA (the Prevention of Money Laundering Act). Most likely, we are going to see regulation in more incremental steps.”

Ashish Singhal, co-founder and CEO at CoinSwitch, another crypto exchange, said that throughout its G20 presidency, the Indian government has not only undertaken measures to expand the dialogue but also made concerted efforts to improve the understanding of virtual digital assets (VDAs).

He said, “This unequivocally signifies that we have progressed beyond discussions centred on banning VDAs.”

“The fact that our leadership believes in the power of technology and how it should be more inclusive reflects a forward-thinking approach. Recognising the importance of a global consensus on crypto represents a significant and positive stride for the industry,” he added.

Overview of the crypto industry in India

Presently, in India, some of the major crypto exchanges are WazirX, Coindcx, Bitbns, zebpay, CoinSwitch Kuber and Flitpay. The global crypto market capitalisation is valued at $ 1 trillion.

According to a report by Chainalysis, a global analytical firm, India leads the way in transaction volume, having received an estimated $268.9 billion in crypto assets.

The biggest CSAO (Central & Southern Asia and Oceania) cryptocurrency market by far is India.

“India leads the world in grassroots adoption as measured by our Global Crypto Adoption Index, but perhaps even more impressively has become the second largest crypto market in the world by raw estimated transaction volume, beating out several wealthier nations,” said the Chainalysis report.

The paper further estimated that 97.5 million Indians, or 7.1 percent of the population, currently own cryptocurrency. “As of 2023, we estimated global crypto ownership rates at an average of 4.2 percent, with over 420 million crypto users worldwide (27 million in India),” it said.

“Technical innovation always precedes regulation and it's important to have an agile approach to regulating emerging technologies like crypto tech, artificial intelligence. To drive responsible innovation, it's necessary to adopt frameworks based upon the principle of 'same activity, same risk, same regulation',” said Sharat Chandra, co-founder, India Blockchain Forum.

Recent crypto industry developments

The taxation framework for crypto assets, or VDAs, which was introduced by the government on April 1, has made both investors and traders more cautious about this new asset.

In the 2022-23 budget, the government had said that gains arising out of crypto assets would be taxed at 30 percent irrespective of the individual’s income tax slab rate. In addition, a 1 percent tax deducted at source was made applicable on the transfer of such assets.

T Rabi Shankar, deputy governor, Reserve Bank of India, in July 2023 said that the central bank's concerns around cryptocurrencies are not around trading but about the product, i.e., the currency itself.

Speaking at Moneycontrol’s Startup Conclave on July 7, Shankar said: “People trading crypto is not the concern but the unbacked cryptocurrencies and the product itself alongside its backers is the problem.”

Earlier, in January 2023, RBI governor Shaktikanta Das cautioned against crypto assets in the Indian economy. Das said crypto is poor gambling and will even undermine the power of the central bank if allowed to grow unchecked.

“If crypto is allowed in India, the RBI will lose control over monitoring transactions," said Das, adding that it doesn’t have any underlining assets. Crypto masquerading as a financial asset is a completely misplaced argument, Das said.