New Delhi: Crypto industry players in the country feel that recent actions by US regulators bestowing significant legitimacy to cryptocurrencies, especially Bitcoin, should encourage Indian authorities to accept crypto assets as legitimate investment assets.
But the change is unlikely, at least if the Reserve Bank of India (RBI) has its way. It has maintained its stance that — regardless of what other countries do — it feels that encouraging cryptos poses significant risks to developing economies.
The US Securities and Exchange Commission (US SEC) Wednesday allowed companies to issue US-listed exchange traded funds (ETFs) that tracked Bitcoin, for the first time ever. Experts say it will open the floodgates for similar approvals for other major crypto assets.
ETFs are instruments traded on stock exchanges in much the way that stocks are. However, the difference is that their value is based on a group of underlying assets, stocks, or commodities. For example, a banking ETF tracks a group of banking stocks.
The advantage is that ETFs allow investors to put money in a group of assets, stocks or commodities without having to actually buy those assets, stocks or commodities themselves.
In a banking ETF, investors can put money in banking stocks without having to buy the individual underlying stocks. Similarly, ETFs tracking Bitcoin will allow investors to invest in Bitcoin without actually buying a unit of the crypto asset itself.
This, analysts say, will open up the world of crypto assets to a large group of investors who were earlier wary of investing directly in them.
“The impact is huge for Bitcoin as this news cycle will continue for some time,” Rajagopal Menon, Vice-President of WazirX, India’s largest crypto exchange, told ThePrint. “These companies (the ones allowed to issue Bitcoin-tracking ETFs) will act as marketing teams for Bitcoin, and a lot of institutional money will pour into the space.”
“The excitement will then move to Ethereum as speculation will mount about an Ethereum ETF,” he added.
ThePrint reached out over email to the Securities and Exchange Board of India (SEBI) asking whether it would consider emulating the US SEC’s decision and the reasons for its decision to go ahead or not. This report will be updated as and when a response is received.
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‘Watershed’ moment for cryptos
Menon’s assessment is echoed by other players in the crypto space, who say that the US SEC’s decision could bring an additional $50-200 billion into the crypto market in the next few years.
“This is a watershed moment for the crypto industry,” Kumar Gaurav, Founder & CEO of Cashaa, another large crypto exchange, told ThePrint. “ETFs will provide institutional as well as new crypto investors with a regulated and easily tradable vehicle to invest in Bitcoin without actually having to do any additional steps like opening a Bitcoin wallet and storing and protecting their purchased Bitcoins.”
Saravanan Jaichandaran, co-founder and chief data scientist at blockchain analytics firm bitsCrunch, said the US SEC’s move will pave the way for Bitcoin — and crypto assets in general — to move away from being novel investments and towards a situation where all investors have crypto assets in their portfolios.
“This opens doors for broader financial inclusion, potentially democratising wealth creation, and empowering unbanked or underbanked populations.”
Jaichandaran added that what makes this development even more significant is that it will now push authorities to set up appropriate regulatory frameworks.
“Robust measures aimed at investor protection, fraud prevention and anti-money laundering measures are mandatory in establishing a secure environment for crypto-based investments,” he noted.
It’s not just crypto industry players that have this optimistic outlook of the US SEC’s move, either. Analytics firms tracking the industry feel the same way, with Yiannis Giokas, Senior Director at Moody’s Analytics saying that such an ETF could lead to increased demand for Bitcoin, and enhance both price discovery and market liquidity.
An example for India?
Gaurav of Cashaa said that the US SEC’s decision, in combination with Europe’s Markets in Crypto Assets Regulations (MiCA), is a clear sign that the leading economies in the world are on a path towards embracing cryptos.
“The Indian regulators could also take a lead from this and work on creating a supportive regulatory framework for crypto to grow in India,” he said.
Jaichandaran too feels that ensuring robust regulatory standards, pilot programmes, and promoting the responsible use of crypto will pave the way towards a more widespread adoption of this “transformative innovation”.
At the same time, the Indian authorities have moved a long way towards regulating crypto assets. From a stance of seeking to ban them, the government is now trying to enact a legislation that would regulate virtual digital assets (VDAs), as it calls them.
Notably, India used its recently-concluded G20 presidency to push for a global consensus on crypto regulation. Towards this, a synthesis paper was submitted to and accepted by the G20, which laid the framework for future crypto regulations by individual countries.
“When it comes to India, it all boils down to regulation,” Menon of WazirX said. “We must remember that regulatory discussions have been happening in the US for the last few years. The SEC has accepted that bitcoin is a commodity and not a security. We are yet to have this type of discussion in India.”
He remains hopeful that things will change soon since India is a signatory to the G20 Delhi declaration, which outlines the regulatory roadmap for cryptos.
RBI remains adamantly opposed
Not long after the US SEC’s decision, RBI governor Shaktikanta Das said that his and the central bank’s stance on crypto assets remained unchanged, regardless of what other countries were doing.
“Our position, my position and the RBI’s position on this (cryptocurrencies), remains unchanged irrespective of who does what,” Das said in response to a question about the US SEC’s decision.
“For emerging market economies and for advanced economies also, travelling down that path will create huge risks which will be very difficult to contain going forward,” he added.
This is in keeping with the RBI’s stance since the emergence of cryptos. It has long maintained that crypto assets don’t have any underlying value of their own and pose a risk to macroeconomic and financial stability.
In 2018, the RBI even ordered its regulated entities to cease providing any services to businesses related to cryptos. This was overturned by the Supreme Court in 2020, but the RBI has not stopped pushing the central government to ban these products.
While he acknowledged the benefit to Bitcoin the US SEC decision would bring, Giokas of Moody’s Analytics did point out certain risks associated with cryptos that cannot be ignored.
“The notorious price volatility of Bitcoin, as well as its fluctuating values against stablecoins and other cryptocurrencies, could expose mainstream investors to a less familiar spectrum of investment risks,” he noted.
(Edited by Tony Rai)
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