Cryptocurrency is going to change the perception in the country

The cryptocurrency market in India, presently, stands at $15 billion, and the volume and value will only increase in the future. Anticipating a dramatic rise in crypto investments in the country, stakeholders in the industry began voicing their support for a robust, accessible, and clear framework on the regulation of cryptocurrency in the country. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, to be introduced in the Lok Sabha soon, aims to prohibit all private cryptocurrencies in India while seeking to create a facilitative framework for adopting a central bank digital currency (CBDC).

The Bill is likely to classify mining, generating, holding, selling, or dealing in private digital currencies as a cognisable offense. Prime Minister Narendra Modi said that emerging technologies such as cryptocurrencies should be used to empower democracy, not undermine it. Reports suggest that the government may introduce stringent regulations in line with the 2021 Financial Action Task Force (FATF) guidance for cryptocurrencies held as assets by imposing investment ceilings, stringent disclosure norms, and levying taxes on gains earned from such assets. In less than 10 years, Bitcoin has increased over 227,000% in value. When it first launched, a 22-dollar investment would now be a million dollars today. That's how people have become billionaires through Bitcoin!

In November 2021, the global cryptocurrency market, constituting more than 6,000 cryptocurrencies, touched a market capitalization of $3 trillion. There has been a sudden flurry of cryptocurrency trading platforms in India over the past year. Latest industry estimates suggest that cryptocurrencies holdings of nearly 20 million investors amount to approximately ₹400 billion in India, suggesting that the country is emerging as the new frontier for the numerous virtual asset service providers (VASPs) dealing in cryptocurrencies. Cryptocurrencies are too risky, even as speculative assets.

All speculative assets, real or financial, have some intrinsic economic value that cryptocurrencies do not have. Such high volatility renders cryptocurrencies a poor risk-diversifier in portfolios. Hence, comparing them with bullion as a risk-diversifier is also wrong. Finally, there is a need for critical reforms to bring back faith in our banking services. Otherwise, like previous examples of money flowing into chit funds and Ponzi schemes, savings will be channeled into cryptocurrencies that are non-productive for investment and economic growth.

Deepak Sahu, President & CEO, VARINDIA