Is India walking on its own toes with cryptocurrency adoption?

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Representative image. | Photo credit: iStock images

Highlights

  • The pandemic has accelerated the ongoing crypto revolution in India
  • At first glance, it appears to be a large cohort of young retail investors scattered across Tier 1, 2, and even Tier 3 cities that are driving cryptocurrency adoption in the country.
  • On several occasions, RBI Governor Shaktikanta Das has insisted that cryptocurrencies pose a threat to the country’s financial security, adding that India’s sovereign currency should not be replaced by private currency.

A recent report from The Economic Times detailing how a growing number of expats are turning to cryptocurrencies to send money to loved ones in the country provided another indication of how Indians are coming to view. digital currencies as legitimate assets.

With remittances to India estimated at around $ 80 billion, the cryptocurrencies expats have found are making transactions easier, more convenient, and cheaper, especially at a time when uncertainty persists over conventional assets. such as government bonds, securities and currencies – a lasting consequence of the COVID-19 pandemic.

The pandemic has accelerated the crypto revolution underway in India. According to a recent analysis by market research agency Finder, India ranked second, behind Vietnam, in percentage of cryptocurrency ownership worldwide. Between April 2020 and May 2021, Chainalysis found that cryptocurrency investments increased from $ 923 million to $ 6.6 billion.

The increased adoption of cryptocurrencies in India has, in large part, followed the Supreme Court’s reading of an RBI opinion that restricted cryptocurrency transactions and exchanges. On April 6, 2018, the RBI issued a circular stating that it did not recognize cryptocurrencies as legal tender, communicating that it would not provide any services, financial or otherwise, to entities engaged in cryptocurrency trading.

While not explicitly stated, experts argued that the move actually amounted to a ban on cryptocurrency trading. But the Supreme Court ruling in favor of the Internet and Mobile Association of India on March 4, 2020, arguing on behalf of cryptocurrency exchanges, was a game-changer.

At first glance, it appears to be a large cohort of young retail investors scattered across Tier 1, 2, and even 3 cities that are driving cryptocurrency adoption in the country. With this trend showing no signs of slowing down, a recent Nasscom-WazirX report suggested that the crypto-tech industry could generate $ 184 billion in economic output by 2030. The sector already employs around 50,000 people. However, it has the potential to grow to 800,000 over the next nine years.

That growth, however, will depend entirely on the fate of the Cryptocurrency and Official Digital Currency Regulation Bill, 2021, which is currently awaiting Union Cabinet approval. Despite the growing interest of retailers in cryptocurrencies, India’s central bank has maintained a view of these assets characterized by deep skepticism and caution.

On several occasions, RBI Governor Shaktikanta Das has insisted that cryptocurrencies pose a threat to the country’s financial security, adding that India’s sovereign currency should not be replaced by private currency.

While the massive downturn in the crypto market that followed China’s cryptocurrency ban will strengthen the RBI’s argument, the reality is that cryptocurrencies are already here to stay. The growth of the industry in India, however, is unfolding in a lingering cloud of uncertainty looming over it.

The reluctance to implement soft cryptocurrency regulations, experts noted, could leave India behind in the global cryptocurrency revolution. While last year’s Supreme Court ruling was a step in the right direction, passing new legislation to regulate the industry without hampering its potential is the need of the moment.


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