A common taxonomy and global standards are a must to evaluate the new tech and protect people. The wild swings of the crypto market also demonstrate that the window for India, and the world, to come to a consensus on laws to protect citizens may be rapidly closing
There is a need for a broader international collaboration before cryptocurrency regulations can be drawn up in India, finance minister Nirmala Sitharaman told Parliament this week. Developments over the summer indicate the need may now be pressing. In May, an entire currency — known as the Terra/Luna stablecoin pair — and a crypto-based lending platform known as Celsius crashed, wiping out tens of millions of dollars of wealth. Searching with just these names on social media services such as Twitter and Reddit offer grim personal stories — most investors were small, and the money they put in was often their life’s savings. After almost trebling in value through 2021, the estimated market capitalisation of cryptocurrencies is down 60% in the first half of 2022.
This has pushed countries to draw up regulations. On June 30, the European Union (EU) made it a legal necessity for so-called stablecoins, which peg their value to a currency such as the dollar or the euro, to maintain reserves in fiat currency. Stablecoins are of particular concern since the Terra/Luna collapse showed their veneer of stability may, in fact, be an impossibility. The EU also empowered its market regulator to restrict or ban exchanges, which serve as important intermediaries. Similar provisions are being considered by the US. Meanwhile, the futility of models like self-regulation seems to be coming into view. Japan’s Virtual Currency Exchange Association, set up in 2018, is now a divided house. Unable to agree on policies and interventions, it is now under fire from Japan’s main financial regulator for not doing enough to protect investors.
In India, the Reserve Bank of India apparently wants a blanket ban on cryptocurrencies. This is not without reason, for India still grapples with the challenges of financial literacy. Its domestic digital payments revolution, for instance, gave rise to a new breed of scammers who targeted mobile wallets, even as traditional frauds such as ponzi scams continue to thrive. The minister, however, indicated there needs to be a better understanding of the risks as well as benefits, and a common taxonomy and standards must first be drawn up globally. This is a pragmatic approach since an open mind to new technologies is crucial for India’s aims to transition into Digital India. But the wild swings of the crypto market also demonstrate that the window for India, and the world, to come to a consensus on laws to protect citizens may be rapidly closing.