In a potentially major setback for the developing sector, India stated that it would prioritize the creation of a framework for international regulation of unbacked crypto assets, stablecoins, and decentralized finance while also exploring the possibility of their prohibition. India is currently holding the G20 presidency.
In December 2022, India took up the Group 20 chairmanship for a year. The club, which consists of 19 countries from different continents and the EU, accounts for 85% of the global GDP. Additionally, non-member nations like Singapore and Spain, as well as international bodies like the World Bank and the IMF, are invited.
The Indian central bank, the Reserve Bank of India, stated in a report that cryptocurrency assets are highly volatile and show high correlations with equities, contradicting the industry’s narrative and claims that virtual digital assets are a different source of value due to their alleged benefits in inflation hedging.
RBI issued a warning, noting that decision-makers around the world are worried that the cryptocurrency industry may grow more integrated with traditional finance and “divert money away from traditional finance with a greater effect on the real economy.”
The Indian central bank is one of the most outspoken critics of the cryptocurrency business. Last week, RBI Governor Shaktikanta Das issued a warning, stating that unless private cryptocurrencies are outlawed, the next financial crisis will be caused by their use.
He said in a conference, “Change in value in any so-called product is the function of the market. But unlike any other asset or product, our main concern with crypto is that it doesn’t have any underlying whatsoever. I think crypto or private cryptocurrency is a fashionable way of describing what is otherwise a 100% speculative activity.”
According to Das, the concept is that cryptocurrency bypasses or undermines the current financial system. “They don’t believe in a regulated financial system or in the central bank. I haven’t yet heard a compelling argument about its benefit to society yet,” he added, adding that, in his opinion, cryptography ought to be disallowed.
India is one of the countries that has adopted a strict cryptocurrency policy. It started taxing virtual currencies last year, charging a gain-based 30% tax and a transaction-based 1% deduction.
The market collapse and the country’s move have significantly reduced the volume of transactions processed in the country by the local exchanges CoinSwitch Kuber, financed by Sequoia India and Andreessen Horowitz, and CoinDCX, supported by Pantera.
Changpeng “CZ” Zhao, founder and CEO of Binance, the largest cryptocurrency exchange in the world, stated that the company does not consider India to be a “particularly crypto-friendly climate.” He claimed that while the company is making an effort to communicate its concerns to the local government on local taxation, tax policies normally take a very long time to change.
“Binance goes to nations with pro-crypto and pro-business regulations. We don’t go to nations where we won’t be able to operate a sustainable business, or any business at all, whether we go or not,” he said.
Coinbase debuted its cryptocurrency platform in the nation earlier this year but swiftly turned down the service due to regulatory concerns. Coinbase has funded both CoinDCX and CoinSwitch Kuber. Brian Armstrong, co-founder and CEO of Coinbase, stated in May that the company has blocked support for local payments infrastructure known as UPI “due to some informal pressure from the [central bank] Reserve Bank of India.”
India is the second-largest internet market worldwide, with more than 600 million connected consumers. The country, which has one of the largest startup ecosystems in the world, has drawn over $75 billion in investment over the past ten years from companies like Google, Meta, Amazon, Sequoia, Lightspeed, and Tiger Global.
