Clarity on Bitcoin

Newspaper Rainbow Series 6th January 2021 Save

Context: India needs a regulatory framework for cryptocurrencies.

Arguments for the need of a regulatory framework for cryptocurrencies in India

Economic significance:
- High-value cryptocurrency trades in rupee: Daily cryptocurrency trades worth Rs 35-40 crore are rupee-denominated, but there is no clarity on the tax treatment.
- Easy to trade: Despite the high face values, it is easy to trade small units. Bitcoin can be broken into a hundred million “Satoshis” (named after the creator), at minimum values of about Rs 150.
- Cryptos offer big savings in cross-currency trades: The brokerage cost of buying bitcoin is less than banking transaction costs in direct remittances of dollars.
- Crypto trades may also impact the huge remittance market: E.g. Facebook intends launching crypto, provisionally named “Diem”, to grab market share in remittances.
- Promotes hedging services: due to the volatile nature of cryptocurrencies, global investment majors are offering managed crypto-investment services, for high-net-worth clients.
Global practices: Many governments, financial institutions, and investment banks have started treating cryptos as mainstream assets.
- E.g. The United States (US) Financial Crimes Enforcement Network (FinCEN) has issued a draft of the proposed regulation;
- Countries such as Japan, Australia, South Korea, Estonia, and Finland have legislation governing cryptos.
Prevalent use:
- Some Non-Resident Indians (NRIs) are already using the crypto route to transfer funds.
- Banks are now offering services to crypto exchanges.
Legality in India: It is legal to transfer rupees in and out of crypto wallets.
- The Reserve Bank of India’s (RBI’s) notification in April 2018 denying banking services to the crypto-trading industry was struck down as illegal by the Supreme Court in March 2020.

Conclusion: The government, the Securities and Exchange Board of India, and the Reserve Bank of India do need to remove the anxiety of unpredictable regulatory change from the minds of Indian crypto traders.