Reviewing the different policy proposals for regulating cryptocurrencies in India and the U.S
Thanks to investors warming to cryptocurrencies and Reddit investors investing their pandemic savings and stimulus grants, cryptocurrencies are hot again: Bitcoin (BTC-USD) rose by 115% in less than a month, XRP Ripple (XRP-USD) by 175% in less than a week, and DogeCoin (DOGE-USD) by 950% in less than a day.
However, with this meteoric rise, regulators from across the globe have also begun increasing the heat on these decentralized assets. It is a complex matter; the markets are volatile, the technology is changing fast, and governments haven’t been able to determine whether cryptocurrencies are securities, commodities, currencies, or a different asset class altogether and in effect, how regulations, legislations, and taxation will affect them.
INDIA: India proposes to prohibit cryptocurrency trade in the nation
In India, the national government will be presenting a bill, “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” to “create a facilitative framework for [the] creation of the official digital currency” and “prohibit all private cryptocurrencies in India.” The government will, however, grant substantial exemptions to facilitate the usage of cryptocurrency and blockchain technology.
This follows the Reserve Bank of India’s failed 2018 effort at prohibiting cryptocurrency trade in India, an order which was subsequently nullified by the Indian judiciary in early 2020. Before the prohibition in 2018, the Indian cryptocurrency market was valued at $12.9 billion. In 2020, the typical daily traded volume of cryptocurrencies on the four most-used trading exchanges increased by 500% from $4.5 million in March 2020 to $22.4 million in December 2020. After China, India is the second-biggest market for Bitcoins in Asia with a typical daily trading volume of $60-65 million.
With the government having a majority in both the houses of the Parliament, this policy will likely be ratified and implemented. This new prohibition will negatively affect the 1.7-million cryptocurrency traders in the nation, who began investing in these assets during the COVID-19 pandemic, risking their savings to supplement their decreased incomes. It will also devastate the companies that invested and developed cryptocurrency trading exchanges in India.
Traders, academics, and company executives alike have criticized the bill and demanded that the government should prioritize the regulation of cryptocurrency trade and exchanges rather than excusing itself from this complex matter by prohibiting them altogether. A regulated market would incentivize investment and wealth creation in India.
USA: Investors holding their breath on lack of clarity from Joe Biden Presidency
In the United States, President Joe Biden on 21st January 2021 annulled his predecessor’s regressive order on cryptocurrency regulations. Although, neither the President nor his government has officially professed a position on cryptocurrency regulations, the government’s highest officials, who will be drafting regulations on cryptocurrency, have stated their preference for regulations in different capacities.
Janet Yellen, the Treasury Secretary, in her nomination proceedings stated that cryptocurrencies are both beneficial and risky; they can increase the efficiency of the financial markets, but they can be used to finance extreme crimes and wrongful activities that risk the U.S.’s national security interests and the integrity of financial markets. She has promised to draft strong regulations for the cryptocurrency market that can maximize the benefits of cryptocurrency, especially of its technology, and simultaneously minimize the associated risks.
Gary Gensler, Joe Biden’s nominee to head the Securities Exchange Commission is pro-crypto and has extensive proficiency in the matter as the former Head of Commodity Future Trading Commission. He has argued for regulations on cryptocurrency exchanges but has referred to cryptocurrencies as the new gold in the US Congress and has publicly reaffirmed their value as “catalysts of change”. However, the bad news for investors is that Gensler in 2018 classified Ethereum’s Ether (ETH-USD) and Ripple’s XRP as securities.
At SEC, if Gensler can officially classify Ether and XRP as securities, then it will subject them to the SEC’s strict compliance and disclosure requirements, affecting their value as viable cryptocurrencies.
These competent officials have a strong know-how of cryptocurrencies. Following their statements, it can be presumed that if the US government drafts a policy on cryptocurrencies, it will be effective, coherent, realistic, investor-friendly, and facilitative of technology and investments.
Investors should be cautious of these new developments in these nations before investing in cryptocurrencies.