Indian investors are increasingly attracted to cryptocurrency, and this trend could prove dangerous.Indians have accumulated nearly $6.6 billion in cryptocurrency (Rs49.189 crore) by May 2018, compared with $923 million up to April 2020. According to Chainalysis, the country is 11th out of 154 countries (pdf) for cryptocurrency adoption.Many believe this is just the beginning of India's digital currency boom. In the future, many Indians will be more likely to use digital coins. India's population is 1.39 billion. This is a country that is primarily young, and is more tech-savvy than the rest of the world. Unocoin has 1.3 million users in India. Harish BV, cofounder of Unocoin told Quartz in May.This growth has given Indian cryptocurrency exchanges reason to celebrate and attract funding from global investors. However, the boom is occurring in the absence any strict guidelines from either the central bank of the government. This is especially problematic given the Indian government's past relationship to cryptocurrencies.India's popularity of cryptocurrencyIndia's central bank (pdf) had almost immediately imposed a ban on banks from participating in cryptocurrency-related transactions. In March 2018, the supreme court reversed this decision, leading to an explosion in virtual currency demand.Recently, the Reserve Bank of India (RBI), issued a statement on May 31 in which it advised banks to not cite its 2018 circular denial of services to crypto platforms or investors. The authorities have remained silent since then.At the moment, investors and cryptocurrency exchanges seem to view the RBI's latest circular as an endorsement. This interpretation could be too generous, and the potential for damage given the size of the investments may make it more dangerous.Although the RBI's regulatory move may signal that they are removing a blanket ban from virtual currency, there are no guidelines. Future policy changes should be viewed with caution.Indian investors are not only vulnerable to the government's stance; they also face other risks due to the absence of regulations. Nischal Shetty (co-founder of WazirX) stated that the biggest regulatory risk to the ecosystem is that bad actors might enter it. We, as exchanges, follow a code of conduct that is self-imposed. However, it is impossible to prevent others from following it.Many issues have been raised by India's cryptocurrency ecosystem, including taxation and payment solutions. These could all be resolved if the RBI and government clarified their long-term views on the sector.With many new projects and innovations taking place, the global cryptocurrency ecosystem is rapidly growing. These people are innovators, investors, and businesses that provide job opportunities. Avinash Shekhar (co-CEO of ZebPay) stated that regulatory clarity surrounding crypto can help India's crypto ecosystem grow.Shekhar believes that virtual currencies can be included in the economy alongside the sovereign currency if there are clear regulations.The crypto industry in India is under attack by the cold warThe investors' enthusiasm has not slowed down, even though the Indian government is currently considering the Cryptocurrency Regulation of Official Digital Currency Act, 2021. This bill could ban all private cryptocurrency in India and create a legal framework for an official digital currency.Nirmala Sitharaman, the finance minister, reportedly stated last week that the government had prepared a draft policy regarding cryptocurrencies. This policy envisages pilot projects and experimentation by fintech companies. We received inputs from stakeholders. The cabinet note has been prepared. Sitharaman stated that we need to wait to see if the cabinet is able to take it up, and then consider it before we can move it.Many believe the delay is because the RBI signaled that it is in-game and is currently working on its central bank digital currency, the Chinese digital Yuan.Shetty stated that crypto markets are still being skepticized because it is technology and is not yet established. All regulators are involved in the financial domain but not the technology domain. They suddenly find a new issue that is both financial and deeply rooted in the technology world. It will be difficult for them to regulate this market.
