Crypto industry agrees to be regulated, but government needs to engage actively

The cryptocurrency industry in India is welcoming regulation and willing to toe the line, but expects more active engagement from the government and clarity that it won't be banned, experts told Moneycontrol in a panel discussion.

The first edition of Moneycontrol Masterclass focused on whether India should ban or buy bitcoins, with the government in the last few weeks asking for a ban, and the industry opposing it. Speakers in this session included Silicon Valley investor and entrepreneur Balaji Srinivasan, former RBI deputy governor R Gandhi, Nischal Shetty- founder and CEO of crypto exchange WazirX, Sumit Gupta, co-founder and CEO of crypto exchange Coin DCX, and Rashmi Deshpande, partner at law firm Khaitan & Co. The session was moderated by Chandra R Srikanth, Editor- Startups, Technology and New Economy, Moneycontrol.

While talks of a ban have been swirling around, the panelists agreed that a blanket ban is counterproductive, and bitcoin as an asset class can be accepted. Currently, bitcoin is used globally as an investment tool, as well as a separate decentralised currency.

“The industry would accept the compromise of using cryptocurrency as an asset and not as a currency.” Srinivasan said.

“As an industry, we are not focused on its use case as a currency, but on the other aspects where there is a need for regulation” Shetty said.

The industry has been grappling with the possibility of an unprecedented cryptocurrency ban since finance Minister Nirmala Sitharaman said a few weeks ago that all private cryptocurrencies will be banned.

Bitcoin and other forms of cryptocurrency also need to be regulated because currently there are no grievance mechanisms if money is lost, and there is no official data on how much it is worth.

“We require more safeguards. As of now there are no laws governing these platforms. Majority of Indians are buying cryptocurrency on these platforms. The government has all the ways to find out who is investing and whether they are liable to pay taxes,” Deshpande said.

Gandhi said that cryptocurrency can be used for investments, but said that it cannot be used as a currency, or have any other function.

“If India bans crypto exchanges, we won't be able to participate in innovation. It is like banning the internet just because crimes happen,” Shetty said.

The government’s worry stems from the fact that bitcoin wealth is so far unaccounted for, can be used as black money, illegal activities, and be a substitute to the national currency- the Indian rupee.

Former governor Gandhi also argued that unlike most other assets or investment tools, bitcoin doesn't have any underlying value and that it could have a limited use case. “So far there has not been a credible alternate use for Distributed Ledger Technology, not in India or anywhere else. There is a limited use case for crypto currency,” he said.

According to the panelists, India has one crore bitcoin investors, and as much as 20 percent of the people investing in stock markets are also cryptocurrency investors, underlining the fact that even the possibility of a ban can have a ripple effect that hits many.

 "Indians hold Rs 10,000- Rs 15,000 crore today in bitcoin and it has been growing at a rapid pace. If you look at market size, crypto is growing at about 10-20 percent in the last 2-3 months itself. I think that is a rapid growth that is happening in India. If you look at what happened in the pandemic, there was a lot of trouble for people in the country. Crypto investments have somehow emerged as a savior,” said Shetty WazirX. 

Srinivasan said that adopting cryptocurrency can give India a leg up in global politics, even while regulating it. “If India adopted crypto on a national level, then in the medium to long term it can stand for peace and trade globally while the US and China have a cold war. With sufficient engineering and a handshake with the government, we can get the good of cryptocurrency without the bad actors,” he said.

Everyone on the panel reiterated that they welcome regulation as long as the asset class itself is not banned. “We are putting our heart and soul to ensure that the ban doesn’t come true. Millions of Indians are willing to buy bitcoin. We just need support,” Gupta said.

And while the possibility of giving the government concrete numbers on bitcoin holders and wealth was entertained, Gandhi pointed out that in that case, bitcoin would lose its anonymity- the basic tenet that makes it unique and valuable.

“The government stands to gain a substantial amount of revenue by bringing in clarity. The worst case scenario would be that the regulation takes a long time to come in. The government needs to continue holding talks with stakeholders. Continuous dialogues are highly required when the technology is so complex,” said Deshpande of Khaitan.

The panelists tended to agree that everyone, including the government will lose a lot if a ban is imposed.

“So many investors hold crypto assets and want to invest in India. Banning it will be taking a step backwards in terms of India’s economic liberalisation,” Srinivasan said.