Tag: Cryptos

Time to clear the air on cryptos

Banking & Finance

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While the government has had mixed and probably even alternating stance on cryptocurrencies, the currency regulator RBI had been silent for a long time and, of late, has shared its concerns on cryptos with the government.

The securities regulator SEBI could be the ideal regulatory candidate if cryptos were to be treated as an asset class.

The Indian investor community has been euphoric about the instrument, despite noise that crypto investing could become illegal or taxed harshly. All this, when the issue of crypto was purportedly settled last year with the Supreme Court of India lifting the RBI’s crypto ban of 2018.

A to G of crypto

Arbitrary actions and reactions will continue as the financial industry has showcased so far. A few months ago, some banks stalled operations or pass-through of the crypto exchanges; purportedly, as the market guesses, to avoid irritating their regulator. The day there is clarity on how crypto would be seen under Indian law, and if it is for holding crypto as an asset, every BFSI and fintech would jump onto the bandwagon.

The banking sector’s lack of understanding of cryptos continues. It is more about understanding the liquidity of various cryptos available. As long as the rules bring clarity on what other information other than KYC would be needed, the sector can chug ahead.

Crypto consumers will stay invested probably until they get hurt by crypto falsehood or misleading investments. It is rightfully the RBI’s endeavour to have consumer protection in mind. But as we regulate the sector, we also have to move to a market-led economy, where, as long as the consumers get into an investment position without being mis-sold or forced to invest, the industry should not be ostracised.

It is also worthwhile to mention that the RBI is planning to launch its own CBDC (central bank digital currency). Debt leverage worry of the lending community will continue until they are allowed by the regulator. End-usage fears that cryptos could potentially be used for terror financing, etc., seem far-fetched, considering the granularity of its traceability. Interestingly, usage of gold or realty seems far in the wrong end of illegal funding.

Functionality of its core, which is blockchain, cannot be brushed away. It has tremendous usage and potential across public finance, banking and financial services; this could help build a secure financing backbone for the entire country as we seek to expand the inclusive-nature of our financial offerings.

The government’s stand cannot vacillate on policy matters without taking wide range of inputs, not just from a commercial angle but also from a deeper technological understanding if it can bring potential good. Let’s remember that our grandparents could not have imagined mobile-payments or transactions without seeing/touching the monies or writing a cheque. So let us not discount the emerging digital monies, for the short term notion of “not wanting it happen in my watch.”

Any asset class’ trade-worthiness and consequent liquidity is determined by a crucial factor: “trust”. Regulations can offer confidence around legality of the asset class and its usage, but cannot determine public acceptance or asset pricing. Regulations can surely offer consumer confidence and consumer protection if they are light-touch and use latest digital supervisory capabilities.

It is essential that the government does not give into knee-jerk reactions of the stakeholders, and takes a pragmatic call. It has displayed tremendous initiative by adopting digital across various facets including financial markets, e-governance, public outreach, etc. It should engage in depth with various stakeholders to understand how digital finance can be used for larger public good, and not give in to short-term worries and lack of capacity.

It’s a good sign that the Parliamentary Standing Committee on Finance has invited crypto industry players to hear their views on the opportunities and challenges. If our regulators take a leaf from this and invite multi-stakeholder discussions and seek inputs about the draft Bill, it would be a comforting exercise.

In the spirit of democratic transparency, it would be welcome if the ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ is put in public domain, and comments sought.

The writer is corporate advisor and markets commentator

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RBI Guv, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The Reserve Bank of India’s Governor Shaktikanta Das today said that the central bank would like to see credible answers on what would be the contribution of private cryptocurrencies to the Indian economy.

Das, who was speaking at the Indian Express-Financial Times event, reiterated that the central bank has “serious” and “major” concerns about cryptocurrencies and their impact on the financial stability in the country.

The Indian government is currently in the process of formulating a cryptocurrency bill that may seek to outlaw all private cryptocurrency, while laying down the path for the introduction of central bank digital currency in India.

India has emerged as one of the biggest hubs for cryptocurrency adoption in the world with some pegging the total value of cryptocurrency owned by Indians at over $6.5 billion as of May 2021. The ownership of crypto assets in India has ballooned 400 per cent over the past 17 months.

According to a survey by Finder, almost 30 per cent of the respondents in India said that they owned private cryptocurrencies in their investment portfolio making it the third-highest among Asian countries.

The surge in demand for cryptocurrencies has led to an explosion in cryptocurrency exchanges in the country backed by investments from marquee global private equity and crypto investors such as Tiger Global, Binance and others.

Recent media reports have suggested that the government may look at designating cryptocurrency as a commodity, which will allow them to function as an asset class like equity, bonds and gold. However, the government has yet to finalise the bill, which is awaiting the approval of the Cabinet and the Parliament.

In the past, Finance Minister Nirmala Sitharaman has suggested that the government is open to taking a calibrated approach towards cryptocurrencies after facing backlash from the crypto industry, which has since gone on a massive public relations drive to spread awareness on the asset.



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HODL your horses, cryptos face possible hurdles ahead, experts say, BFSI News, ET BFSI

Personal Finance

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Evolving rules, environmental concerns and competition from central banks threaten to undermine many of the world’s fast-growing crypto assets, crypto and macro experts said, while creating opportunities for those able to adapt.

Europe and the United States are both working on regulating digital assets and their providers – moves welcomed by investors, who hope the new ground rules will encourage institutional investors to plunge in.

Anatoly Crachilov, co-founder and CEO of Nickel Digital Asset Management, which manages assets worth $200 million, told the Reuters Global Markets Forum that regulatory uncertainty was a drag on the development of the crypto space.

He described the promise by the U.S. Securities and Exchange Commission‘s new Chairman Gary Gensler, to provide “guidance and clarity” to the market during his confirmation hearing in March, as a turning point.

For its part the European Commission‘s proposed “Markets in Crypto-assets,” or MiCA regulation, will regulate crypto-assets and their service providers in the European Union.

“It will be a new banking sector, with passporting possibilities,” digital asset trading solutions company H-Finance CEO Vytautas Zabulis said, referring to the prospect of EU-wide cryptocurrency trading licences.

Alongside the evolving regulatory framework, some countries, including China, Britain and Russia, are considering launching their own central bank digital currencies (CBDCs).

That is likely to be followed by legislation to tax gains, said Robert Carnell, chief economist and head of research at ING Asia. “That may be the death knell for these other cryptocurrencies, though central bank coins are on the up and up,” he said.

Zabulis said that if CBDCs were developed in a way that they were “easy to interact with,” most digital currencies used for settlements will likely lose their both their goal and value.

There was not a big argument for bitcoin becoming a settlement tool, Zabulis cautioned. “Blockchain technology is for that, so, CBDCs will be built on blockchain.”

Bitcoin BTC=BTSP traded around $54,000 following a 10% surge on Monday, driven by reports that JPMorgan Chase JPM.N is planning to offer a managed bitcoin fund.

CBDCs are expected to have a limited impact on Bitcoin in particular, due to its progressively limited supply, which is in contrast to traditional fiat systems, Crachilov said.

“No central bank currency, however digital, can offer scarcity at this stage, as its supply can be inflated by a respective central bank issuing entity,” Crachilov said.

If China saw bitcoin as a threat to its own planned digital currency, that could affect the whole industry, Zabulis said.

GREEN REVOLUTION?
Creating crypto assets leaves a heavy carbon footprint, and is being increasingly seen as environmentally unsustainable.

ING Asia’s Carnell said there was “a strong argument on environmental grounds for limiting crypto mining, or at least having them offset their wasteful practices.”

However, bitcoin enthusiast Raoul Pal said he was not worried about the “unsustainability narrative”.

Pal, founder and CEO of on-demand financial TV channel Real Vision, said he believed it would drive a “green revolution” because in the end that was “the only way to win”.

Nickel Digital’s Crachilov said his fund was seeing a higher demand for ESG-compliant cryptos. “The price competition drives miners towards the cheapest sources of energy — renewables are increasingly falling into this category,” he said.

Ethereum 2 will use “proof of stake versus proof of work,” H-Finance’s Zabulis said. “It means that it will drastically reduce the energy needed” to mine it.

Garrett Minks, chief technology officer at Delaware-based RAIR Technologies, said the idea is to “trade brute force electricity burning with fancier math”.



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Cryptos put India’s richie rich in a catch-22 situation, legality of transaction may be questioned, BFSI News, ET BFSI

Personal Finance

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It’s a Catch-22 situation for wealthy Indians who bought Bitcoins from overseas markets and held them in offshore wallets as the fate of cryptos hangs in limbo in India. They are now in a quandary over how to account for, and whether to disclose, these ‘digital assets’.

If they hide these investments from the taxman, they may be pulled up later. But if they share the information while filing their annual income tax returns, they may be questioned on the legality of transactions they undertook. Some have acquired Bitcoins and other popular crypto currencies from international sellers by transferring funds from India under the Reserve Bank of India’s liberalised remittance scheme (LRS) which allows a resident to invest up to $250,000 a year abroad in stocks, bonds and properties among other things.

Others have purchased cryptos online from foreign sellers using their debit and credit cards. But there are question marks whether the LRS route and bank cards can be used to buy cryptos abroad. Bankers who remit LRS money say the facility cannot be used for direct purchase of Bitcoins from India as it does not figure in the permissible list of capital account transactions.

It’s one thing to subscribe to Coinbase IPO, but it’s another thing to buy Bitcoins directly. At least, that’s the impression they gather in their interactions with RBI.

But what if a person avails the LRS window to open a dollar or Euro account with a bank overseas and subsequently uses the money to buy Bitcoins abroad? Well, it’s none of our business, the bankers say. But is it beyond RBI’s jurisdiction as well? A RBI spokesman declined to comment on whether one can invest in cryptos under LRS. The use of debit or credit cards is done under the pretext that trades in cryptos are ‘current account’ (not capital account) transactions—a stand that can be challenged.

“While there is no specific provision dealing with purchase of Bitcoins under the LRS and while RBI has not specifically banned crypto currencies in India, there remains ambiguity whether individuals would be permitted to purchase the same. Further, in the absence of clarity on whether crypto currencies amount to “currencies” or merely a “contract / digital asset” in the hands of the recipient, it would be difficult to classify the same for reporting under the LRS since the fields provided for reporting under the form do not provide for such a disclosure,” said Tushar Ajinkya, founder and managing partner, ThinkLaw. However, according to Jaideep Reddy, leader (technology law) at Nishith Desai Associates, the RBI has not clarified the treatment of crypto-assets under FEMA but has stated that they do not amount to currency.

“They could hence be treated as intangible assets like intellectual property or software. Import of an intangible asset is permitted as a current account transaction. However, every transaction has to be analysed according to its specific facts and context,” said Reddy. Even as ambiguity prevails on the use of LRS, investors are now grappling with the dilemma over disclosure. Resident Indians are required to mention details of foreign bank accounts (including accounts in which they are signing authorities), immovable properties, or other assets located outside the country.

Here, the question that crops up is: should resident Indians disclose their overseas crypto holdings while filing returns for the assessment year 2021-22? A spokesperson for the direct tax body CBDT refused to comment while the professional accounting body ICAI had no views to share on the subject. Some of the tax professionals have told their clients to avoid cryptos while investing under LRS. “We believe RBI does not allow the use of LRS for purchase of crypto currencies as these are not in the list of permitted securities specified for purchase under LRS. However, no action has been taken by RBI till now as it may not have collected the data,” said Rajesh P Shah, who heads the research committee of The Chamber of tax Consultants.



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