Do the crypto boys know something we don’t? One bank after another has blocked payments for crypto-currency trades. RBI has – at first obliquely and, of late, directly – voiced its suspicions on what it calls ‘private virtual currencies’. Anurag Thakur, who as junior finance minister was the only government functionary to be surprisingly supportive of cryptocurrencies, is now heading the sports ministry.
A Bill on cryptos hangs like a sword with no hints on what the proposed legislation would say. And, a week ago China, a large crypto mining base, prohibited all trades, forcing many miners to go dark. All this can fluster any market.
However, the crypto crowd in India is unperturbed. Serious traders as well as newbies, young people and pensioners are buying cryptos using electronic wallets (an expensive option) and smaller banks, which are yet to clamp down on transactions.
Crypto bourses are advertising to attract more investors. At least one of them has raised money from foreign private equity investors who, though aware of the regulatory risks, are driven by FOMO – ‘fear of missing out’ – the startup world syndrome that steers venture capitalists searching for the next unicorn to the arms of young entrepreneurs.
The trade is flourishing amid veiled regulatory warnings, legal void, payment hurdles, volatility, and sheer ignorance of millions of investors who are emboldened by the price rebound after every bad news. They are unruffled by the sweeping ban by China on all transactions linked to cryptos. They think even if China, which had failed to ban cryptos before, succeeds this time, miners in Iceland and other countries where electricity is cheap would step in.
Indeed, some of the local young investors I spoke to are thrilled by reports of US Federal Reserve chairman Jerome Powell saying that he has no intention to ban cryptos, and further clarifying that he had ‘misspoken’ about a central bank digital currency (CBDC) replacing cryptos. These investors even find the plan by El Salvador to mine bitcoin – which the country now considers a legal tender -‘simply awesome’. It’s surreal.
Powell’s stance finds no echo in India. Probably, very few monetary authorities in the world can afford what the central bank of a country with a fully convertible reserve currency, and a reputation for being at the forefront of innovations, can.
In fact, two months ago, RBI deputy governor T Rabi Shankar said, ‘It is not clear what specific need is met by these private VCs (virtual currencies) that official money cannot meet as efficiently, but that may in itself not come in the way of their adoption. If these VCs gain recognition, national currencies with limited convertibility are likely to come under threat.’ Short of calling cryptos a fool’s gold, rarely has RBI been so unequivocal about a subject -despite the Supreme Court striking down an earlier ban order by the regulator.
The point was largely missed with most media reports focusing on RBI’s plan to launch a CBDC – no different from a fiat currency notes in your wallet – rather than the attack on cryptos. So, the party goes on with more than 1.5 crore investors having put in a few billion dollars.
What, then, is everyone betting on? Even though RBI can be stubborn about rules, New Delhi will prevail over the regulator. India will refrain from an outright ban like China – particularly, with many global venture capital fund managers preferring India to China after the latter’s crackdown on ‘fintech’ firms. Cryptos, after all, are a cocktail of finance and technology. A wrong signal can spoil the party that may have started with the Zomato IPO.
And in case there is a sudden ban, savvy traders may have a Plan B: hold cryptos in personal wallet, spot buyers overseas, and park the cash abroad, something that smaller investors can’t afford. And despite the frenzy, the collateral effects of a crash or scandal in crypto (compared with other asset classes) could be small. So, why worry?
But it’s time the madness finds a method. The Bill, after factoring in RBI’s concerns, should be taken up in Parliament’s winter session. Disclosure rules for all crypto holdings – including personal wallets, hard disk and pen drives – and peer-to-peer transfers must be laid down to address money-laundering fears. An information-sharing arrangement with overseas exchanges to obtain IDs of traders who deal with Indian counterparts in cross-border peer-to-peer transactions has to be initiated.
The crypto story may or may not end badly. But GoI can’t be seen not playing its part.