Global Eyes: A Look Around The Block(chain)
As the Cryptosphere strives for legitimacy through pragmatic regulation, we see a very much individualistic approach by a variety of Nation States. Whilst some such as the United Kingdom have been fairly slow to develop any concrete legislation and regulation1, others such as China have taken the lead and gone a separate route. A good case can be made for this being both a backwards and forwards move. Perspective is everything.
Prior to the official release of the Chinese digital Renminbi/Yuan central bank stable coin (hereafter ‘CBSC’), with global governments seemingly dragging their heels in countering the issue, the CCP pushed the envelope by introducing new measures on so-called ‘private’ cryptocurrencies such as Bitcoin, Ethereum, Monero etc.2,3,4
As retail investors, it is crucial that we retain a global perspective of how governments intend to deal with the Cryptosphere in the short, medium and long term. The ‘West’ remains very much a mixed bag, with nations such as Belarus legalising cryptocurrencies5, the likes of Germany and Portugal having a relaxed taxational approach6, and somewhat cumbersome, nigh on draconian regulatory efforts from the UK and USA offset by some pockets of trail-blazingly progressive intent, such as that of Miami Mayor Francis Suarez.7,8,9,10
On the whole, these approaches generally amount to capital gains tax (CGT) and ‘Know Your Customer’ (KYC) identity regulations. However, China taking the initiative and playing its hand with such confident swagger has prompted several noteworthy responses from around the world.
Herein, we take a closer look at some of the global developments that seem to be setting the tone for how respective governments worldwide intend to approach, handle and manage this new paradigm.
Innovative India...?
With over 10 million people believed to own cryptocurrencies in India, and the industry giving rise to over 300 start-up businesses, it is fair to say that blockchain and cryptocurrency has been as burgeoning and flourishing in India as anywhere. Indeed, over the last year peer-to-peer Bitcoin trading in India has overtaken that of China in 2020).11
Despite this flourishing success and ever-increasing momentum, in January 2021 the Indian Parliament tabled The Cryptocurrency and Regulation of Official Digitcal Currency Bill 2021.12 The specifics of the draft bill are as yet unclear13, with an expectation it will be introduced during the next Indian parliamentary sessions in March – April 2021.14
The State of Play...
However, it is generally considered to include the infrastructure to follow in China’s footsteps in the issuance of an Indian Rupee (INR) CBSC and a ban on ‘private’ cryptocurrencies. This is not the first time India has proposed such legislation.15 Indeed, many consider the new proposal to be an amendment to a 2019 bill, with the addition of the CBSC clauses and mechanisms.16
Understandably, this regulatory shift has not gone unchallenged, with several protest groups taking to the internet and social media to garner support in opposition of the proposed legislation.17,18,19 Despite this considerable opposition, some commentators such as Anurag Thakur appear confident that the Indian government is likely to pass the bill.20
This is a somewhat surprising turn of events, with the Reserve Bank of India (RBI) previously having utilised the RBI Act 1934 in conjunction with the Payment Settlement Systems Act (2007) to restrict cryptocurrency trading, rendering some service provisions illegal. This in turn led to a decline in P2P trading, until the Supreme Court of India reviewed and overturned its previous ruling in March 2020.21
Since the current precedent has been in effect, the crypto industry has been wading in murky waters, with the crypto industry legal, yet unregulated, and ‘private’ cryptocurrencies themselves not granted legal tender status. Despite this, P2P Bitcoin trading has increased by approximately 87%22 and it is reported total crypto trading volume increased 500% between March and December 2020.23 Therefore, it seems peculiar that just a year later the government looks intent on bringing a halt to this explosive trend entirely.
Whilst I am cautiously pessimistic with regard to the propensity for current governmental regimes to be somewhat draconian (see the shambolic ‘War on Drugs’)24,25 I am somewhat optimistic about the longer-term future of cryptocurrency in India.
Opening Moves...
Ultimately, I am extremely bullish on the medium and long term trajectory of the Cryptosphere and I very much see India as a significant player in that global market.
Whilst I am certainly no expert on the psychology of government officials or the cultural , environmental and geo-political factors that underpin policy decision-making in India, I feel that this step by the Indian government is more a case of being seen to be taking action and moving with the times rather than a long-term banning of crypto-related activities.
Whenever there is such a new highly innovative, potentially disruptive industry or market, those with the power to dictate how it evolves will always move cautiously, in the hope to position themselves optimally – both as a hedge against short-term uncertainty, but also, to be best positioned for the long-term.
Ultimately, nobody wants to be the first, and nobody wants to be the last. We currently see this behaviour being mimicked by institutional investment into crypto also.
With China’s CCP government having taken such a bold first move to roll-out their own CBSC26 with authoritative confidence, it would have been supremely foolish of India – a nation facing similar issues pertaining to natural disasters/extreme weather, population size, GDP per capita etc. - to have not sat up and taken notice. At this moment in time, any action will be more roundly well-perceived than inaction.
Without the benefits of either a crystal ball or 20-20 hindsight, it is of course impossible to predict precisely how this bill, and others that subsequently follow from other administrations, will pan out in the short, medium and long terms.
However, India has forged a formidable IT economy in recent decades27 and it has been apparent that embracing technological advancement and combining it with the brightest minds and research resources the country has to offer is an effective way of addressing a myriad of issues from wealth and living standard disparity to localisation of people and wealth-generating activities such as jobs.28,29
India endures a maelstrom of potentially cataclysmic extreme weather events, ranked as the 3rd most natural disaster-prone region in the world by the United Nations 30 perpetuating logistical nightmares at best and tragic loss of life at worst.31 It my fervent belief that blockchain and cryptocurrencies offer opportunities that can help mitigate and overcome these issues to an extent, due to the wondrous potential of a fully digitised, globalised and tokenised economy.32,33
Check or Checkmate?
Last year ended on a high note for Indian crypto, with Unicas announcing it would be planning to open a total of 14 physical branches facilitating both crypto and fiat transactions, and the first of its kind. Unicas is a joint venture between Cashaa and United Multistate co-op, who plan to open 100 stores by 2022.34
Such developments have to be given credence, and one would hope that the seemingly smart folks responsible for Unicas have their fingers far closer to the pulse of Indian governmental sentiment than most.
Furthermore, innovative Indian DeFi projects such as Unilend35 and PlotX36 offer potential solutions, irrespective of the legislative approach.37
International crypto companies based in Mumbai are not only continuing to hire developers and engineers as contractors, but are also paying salaries in cryptocurrency as a means of accelerating adoption whilst bypassing current local taxes and laws.38
Recent geopolitical events have served to highlight the strength of the collective sentiment in India39,40,41, which along with the sheer size of the continent, the mass of its population and its ever-explosive rates of scientific and technological development.42,43
Suffice to say, all of the pieces are in place for India to fulfil its ambition as an emerging potential superpower43, 44, 45, should they be wielded and played with finesse, precision and pragmatism.
