Government Intervention in the Cryptocurrency Market


Cryptocurrency exchange Unocoin launched in 2013, making it accessible for Indians to buy and sell Bitcoin and the same year witnessed a Bitcoin rise from $100 to $1,000. Cryptocurrency has been in the news lately following wild price swings and with a boom in trading induced by the lockdown which meant several newcomers have started dabbling in the asset class. But the sword of regulatory uncertainty hangs heavy on the cryptocurrency market in India with policymakers making their discomfort with the asset quite clear through various suggestions and decisions in the past. The overall crypto market remains extremely volatile at the moment.

The recent uncertainty in the crypto market has been triggered by a barrage of unpleasant announcements ranging from Elon Musk’s tweet to China crackdown and tight regulations and investigations against crypto trading platforms like Binance. Presently Bitcoin BTC is priced at INR 3038011.30, Ethereum ETH at INR 195299.17, and Binance Coin BNB at INR 25257.15.

Singapore headquartered crypto platform Vauld is looking to expand its international presence, ramp up hiring and licensing to continue offering crypto banking and investments on its platform. On Thursday, the company announced raising USD 25 million (Rs 186 crore approximately) in a Series A round of funding led by Peter Thiel-backed early-stage technology venture capital firm, Valar Ventures. Founded in 2018 by Darshan Bathija and Sanju Sony Kurian, Vauld currently counts Binance and BitGo as exchange and custody partners. Another crypto firm, CRED, raised USD 215 million in a Series D in April that valued the Indian startup at USD 2.2 billion (post-money), up from about USD 800 million valuations in the USD 81 million Series C round in January this year.

While the number of private cryptocurrency exchanges operating in India is growing, the Union Government has no official data on them or the number of investors linked to these exchanges. In reply to a query on the number of cryptocurrency exchanges operational in India and the number of investors linked to them, Union Minister of Finance Nirmala Sitharaman in a written reply tabled in Rajya Sabha on Tuesday (July 27th, 2021) said: “This information is not collected by the Government.” In response to another query on “whether it is a fact that narcotic drug traffickings and money laundering are being committed through many of the cryptocurrency exchanges”, FM Sitharaman said, “No such information has come to the notice of the Government.”

The Finance Minister also denied that the Government was planning to impose an equalization levy on the number of investors who have bought cryptocurrency from abroad. In the meantime, the European Commission’s proposed Regulation on Markets in Crypto Assets (MiCA) is going through its first readings in the Council and the European Parliament. This regulation will form part of the EU’s Digital Finance Strategy and is likely to significantly impact the operation of the crypto market in the EU.

The Government is expected to be working on a cryptocurrency bill and the RBI is also planning to introduce Central Bank Digital Currency (CBDC) in a phase-wise manner to curb the damaging consequences of private virtual currencies. RBI Deputy Governor T Rabi Sankar recently said that the central bank was “working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption”. RBI is currently examining the scope of CBDCs, the underlying technology, the validation mechanism, distribution architecture, and degree of anonymity, etc. 

Digital currency is the way of the future but the complete shift is not only unlikely but also quite concerning considering the turbulent status of cryptocurrencies.

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