The G20 has an excellent opportunity to achieve three important themes. These important topics include debt relief, regulation of Cryptocurrency, and climate finance.
With no global consensus or framework in place, cryptocurrency regulation is one area where India can take advantage of its G20 presidency to lead the way. The crash of several major Cryptocurrencies in 2022 has emphasized the importance and need for cryptocurrency regulation to protect consumers and investors as well as maintain confidence in financial markets.
The decline of Cryptocurrency in 2022
The cryptocurrency was designed to be decentralized, which means they are not controlled by a central authority. The independent nature of Cryptocurrency provides an alternative to traditional financial institutions, which are usually centralized and controlled by banks and NBFCs. However, despite decentralization, the cryptocurrency industry has become increasingly centralized. Many major cryptocurrency exchanges, such as FTX, Binance, and Coinbase, are centralized and control a large portion of the market.
There are many reasons why the matter of centralization has come to the fore. One reason is that it is generally easier to collect information about and control centralized entities than decentralized entities. Centralized exchanges can offer a wider range of facilities and services, such as margin trading and futures contracts, and conduct transactions more quickly and efficiently than decentralized exchanges. Decentralized exchanges, on the other hand, have higher transaction costs, are slower, and are more complex to use.
Another reason is that centralized exchanges are able to monetize their platforms more effectively than decentralized exchanges. Many centralized exchanges have attracted venture capital investment, which has enabled them to grow and expand. In contrast, decentralized exchanges have struggled to monetize their platforms, which has limited their growth.
Cryptocurrencies were initially seen as a decentralized and trustworthy alternative to traditional financial systems, but various controversies and failures such as FTX, Mount Gox, and OneCoin have severely affected the cryptocurrency industry. These incidents are similar to previous major financial and accounting crises such as Satyam, Lehman Brothers, and South Sea Company, which were not only motivated by greed but were the result of making quick profits in any case.
These scams often involve inflating the balance sheet, manipulating the value of shares or tokens, and using false marketing to defraud investors. These recurring incidents indicate that financial scams are often driven by human greed at their core, regardless of the specifics, details and industry involved.
Regulation of Cryptocurrency is very important for many reasons. However, the most important reason for this is to protect consumers from fraud and other financial crimes. Cryptocurrency, a relatively new and largely unregulated asset class, have been vulnerable to scams and other illegal activities. By setting rules and standards for the use and trading of cryptocurrencies, regulators can help reduce the risk of such illegal activities and protect consumers from financial loss.
Another reason for the regulation of Cryptocurrency is to promote greater stability and reliability in the cryptocurrency market. Cryptocurrencies are highly volatile and their value can fluctuate significantly over short periods of time. All of these things make cryptocurrencies extremely risky for investors and difficult for businesses to use as a form of payment. By regulating Cryptocurrency, authorities can help reduce this volatility and instill more confidence in their use as a medium of transaction.
Ultimately cryptocurrency regulation can ensure that cryptocurrencies are used in a way that is consistent with broader financial and economic policies. These issues such as tax compliance and preventing money laundering and terrorist financing. By setting rules for the use of cryptocurrencies, authorities can help ensure that they cannot be used for illegal purposes and that they are integrated into the wider financial system beneficial to all stakeholders.
Crypto regulation in India
There has also been a change in India’s outlook on cryptocurrency. In 2013, the country’s central bank, the Reserve Bank of India (RBI), issued a statement warning users, holders and traders of all virtual currencies, including cryptocurrencies, about the potential risks associated with their use. In the year 2017, RBI issued a circular prohibiting banks and other regulated entities from providing services to individuals or businesses dealing in cryptocurrencies. This circular effectively put an end to Indian residents.
It’s illegal to buy or sell Cryptocurrency
The Supreme Court of India overturned the RBI’s ban on cryptocurrencies. Describing it as “inconsistent”, the Supreme Court said that by imposing the ban, the RBI has violated the fundamental rights of the citizens. The decision effectively legalized the use of cryptocurrencies in India and also paved the way for their widespread adoption.
Since then, the Government of India started thinking of creating a regulatory framework for cryptocurrencies. In the year 2022, the Finance Ministry released a report, proposing a digital rupee, a government-backed cryptocurrency as well as a framework for regulating private cryptocurrencies. The report also recommended setting up of a Digital Currency Regulatory Authority (DCRA) to oversee the use of cryptocurrencies in India.
Indian Finance Minister Nirmala Sitharaman announced significant changes in the treatment of virtual assets, including cryptocurrencies, in the 2022 general budget. For the first time, the government officially classified all digital assets, including cryptocurrencies, as “virtual digital assets”. In the proposed tax regime, the government has announced a 30 per cent income tax on the transfer of “crypto-assets”. This announcement by the government is an important step towards regulating the cryptocurrency industry and providing clarity to investors and entrepreneurs dealing with digital assets in India.
G20 for cryptocurrency regulation
India will hold 40 meetings across the country as part of the finance track of its G20 presidency. The purpose of these meetings will be to contribute significantly to global economic discussions and various working groups will be included in them, as well as four ministerial-level meetings will also be held under it. Focus areas of the Finance track include regulating crypto assets, managing credit delinquency, and changing the direction and goals of global financial institutions.