Regulation of Crypto Assets

What is the issue?

Countries are in various stages of banning, un-banning, re-banning and regulating crypto assets.
India can take some cues from other countries, but it needs a smart regulation that is made in India.

A crypto asset is a digital asset; but not all digital assets are crypto assets.
The distinguish features of crypto assets:
1. uses cryptography
2. depends on distributed ledger technology
3. no need for a third party such as a bank to issue crypto assets
4. have three primary uses: as an investment, a medium of exchange, and to access goods and services.
Crypto assets are commonly known as cryptocurrencies such as Litecoin, Ripple, Bitcoin, and Ethereum.
Other crypto asset classifications are utility coins, security coins, and cryptocurrencies.

Domestic crypto markets in India and the global opportunities in that domain are synergistic.
So, finance firms, banks, fintech and crypto startups in India can tap into the huge growth of the industry.
Creative ‘crypto export zone’ schemes can incubate clusters of excellence and create world-class financial services firms and unicorns, much like the software technology parks (STPs) and SEZs enabled the IT services boom.

Blockchain application development, its scalability, security and analytics are their next growth opportunities.
To cater to this demand, there is a need for a large talent pool with expertise in the crypto tech stacks.

Crypto assets can grow as an option under emerging financial innovations with burst of technology innovation and business models around blockchains.

Investor protection - Crypto assets are seen as high-risk, speculative assets.
Investor education, guidelines against mis-selling and other safeguards are needed.
Crypto assets are now better understood as digital assets, instead of as digital currencies.
Regulating them like commodities and clarifying their tax treatment is a win-win.
The government’s tax revenues go up. It can also increase the number of tax filers and the number of taxpayers.
Sidestepping current regulations - Some crypto assets may allow individuals to bypass securities issuance laws - A potential risk to capital markets.
Crypto assets may be used to avoid capital controls - A potential risk to macroeconomic stability.
If crypto holders have to declare their holdings above a particular level in their tax forms, such concerns can be mitigated.
Illicit transfers - Anonymous transfers of crypto assets may weaken anti-money laundering laws or combating the financing of terrorism rules - A potential national security issue.

In all, a smart regulatory approach should foster financial innovation, safeguard investors and unshackle the Indian crypto ecosystem.

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