The collapse of Terra back in May sparked heated discussions over the nature of regulations for India’s virtual asset industry, but FTX’s implosion appears to have sealed the fate of the sector.
Industry participants are now bracing themselves for even tighter regulations from the relevant agencies, and areas like NFTs and the metaverse that have not received attention may well face greater scrutiny. Already, India’s Finance Minister Nirmala Sitharaman disclosed at the Indian Council for Research on International Economic Relations (ICRIER) that regulating digital assets forms part of its core objectives under its G20 presidency.
Sitharaman added clear regulations were in India’s best interest, given the potential for the asset to be deployed in drug trafficking and terror funding. Besides the government, chief executives of digital asset firms have also been pining for clarity in regulations in the wake of the FTX collapse.
“Many market participants are frantically looking for greater regulatory clarity and predictability. This calls for new guidelines as well as norms and regulations,” Raj A Kapoor, CEO of India Blockchain Alliance, said.
CEO of MuffinPay, Dileep Seinberg, advocated for consistency in incoming regulations so that “cryptocurrency players will know their boundaries and have clear instructions for the operations.”
Data from KuCoin’s “Into the Cryptoverse India Report” survey noted that one-third of India’s virtual currency investors are concerned about the severity of the incoming regulations. This is coming on the heels of India’s notoriously stiff tax policy that charges 30% plus a surcharge on the profits made from trading digital currencies.
Despite a streak of a hard outlook towards digital assets, distributed ledger technology (DLT) enthusiasts can heave a sigh of relief because India has tilted favorably to the offering. Sitharaman revealed that the country was targeting DLT adoption rates of nearly 50% before 2030 and may be relying on it to create its central bank digital currency (CBDC).
A rocky relationship with digital currencies
Apart from the tough tax regime imposed on the asset class, other pointers indicate India’s frosty relationship with digital assets. One of which is the consideration of a blanket ban over the entire industry similar to the one imposed by China.
The move to ban virtual assets was championed by the Reserve Bank of India (RBI) on the grounds that it could negatively affect the country’s economy while citing the scarcity of investor protection mechanisms in the industry.
A government panel proposed a jail term of up to 10 years for individuals dealing in digital assets, but the recommendation was not implemented. In 2020, the country’s Supreme Court overruled a 2018 order from the RBI that banned banks and other financial institutions from facilitating virtual currency transactions.
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