India said on Thursday that under its current G20 presidency it will prioritize developing a framework for global regulation of unsupported crypto-assets, stablecoins and decentralized finance and the “possibility of [their] ban” in a potentially major setback for the nascent industry.
India began its longstanding presidency of the Group 20 early this month. The group, which includes 19 countries across continents and the EU, represents 85% of global GDP. It also invites non-member countries, including Singapore and Spain, and international organizations such as the World Bank and the IMF.
The Reserve Bank of India, the Indian central bank, said in a report today that crypto-assets are highly volatile and have high correlations to stocks in ways that challenge the narrative and industry claims that virtual digital assets are an alternative source of value due to their perceived inflation hedging benefits.
India’s central bank warned policymakers around the world are concerned that the crypto sector may become more intertwined with mainstream finance and “divert funding from traditional finance with a wider effect on the real economy”.
The Indian central bank is one of the most outspoken critics of the crypto industry. RBI Governor Shaktikanta Das warned last week that private cryptocurrencies will spark the next financial crisis unless their use is banned.
“Value change in any so-called product is the function of the market. But unlike any other asset or product, our main concern with crypto is that it doesn’t have any underlying asset. I think crypto or private cryptocurrency is a fashionable way of describing what is otherwise a 100% speculative activity,” he said at a conference.
Das said crypto owes its origins to the idea that it bypasses or breaks the existing financial system. “They don’t believe in the central bank, they don’t believe in a regulated financial world. I have yet to hear a good argument about what public purpose it serves,” he said, adding that he believes crypto should be banned.
India is one of the countries that have taken a strict approach with cryptocurrencies. Earlier this year, it began taxing virtual currencies, charging a 30% tax on profits and a 1% deduction on each crypto transaction.
The relocation of the country, in addition to the downturn in the market, has severely depleted the transactions that local exchanges CoinSwitch Kuber, backed by Sequoia India and Andreessen Horowitz, and CoinDCX, backed by Pantera, are processing in the country.
Changpeng “CZ” Zhao, founder and CEO of the world’s largest crypto exchange Binance, told businessroundups.org in a recent interview that the company doesn’t see India as a “very crypto-friendly environment.” He said the company is trying to convey its concerns about local taxation to the local government, but claimed that tax policies typically take a long time to change.
“Binance goes to countries where the regulations are pro-crypto and pro-business. We’re not going to countries where we’re not going to have a sustainable business — or any business for that matter whether we go or not,” he said.
Coinbase, which has backed both CoinDCX and CoinSwitch Kuber, launched its crypto platform in the country earlier this year, but quickly rolled back the service due to a regulatory scare. Coinbase co-founder and CEO Brian Armstrong said in May that the company has turned off Coinbase’s support for local payments infra UPI “because of some informal pressure from the [central bank] Reserve Bank of India.”
With over 600 million connected users, India is the second largest internet market in the world. Home to one of the world’s largest startup ecosystems, the country has attracted more than $75 billion in investment over the past decade from the likes of Google, Meta, Amazon, Sequoia, Lightspeed and Tiger Global.