India said on Thursday that under its ongoing G20 presidency, it will prioritize the development of a framework for global regulation of unbacked crypto assets, stablecoins and decentralized finance and will explore the "possibility of [their] prohibition" in a potentially large setback for the nascent industry.
India began its year-long presidency of the Group 20 early this month. The group, which comprises 19 nations across continents and the EU, represents 85% of the world's GDP. It also invites non-member countries including Singapore and Spain and international organizations such as 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 exhibit high correlations with equities in ways that dispute the industry's narrative and claims around the virtual digital assets being an alternative source of value due to their supposed inflation-hedging benefits.
The Indian central bank warned that policymakers across the globe are concerned that the crypto sector may become more interconnected with mainstream finance and "divert financing away from traditional finance with broader effect on the real economy."
The Indian central bank is among one of the most vocal critics of the crypto industry. RBI Governor Shaktikanta Das warned last week that private cryptocurrencies will cause the next financial crisis unless its usage is prohibited.
“Change in value 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 whatsoever. I think crypto or private cryptocurrency is a fashionable way of describing what is otherwise a 100% speculative activity,” he said in a conference.
Das said crypto owes its origin 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’m yet to hear a good argument about what public purpose it serves,” he said, adding that he holds the view that crypto should be prohibited.
India is among the nations that has taken a stringent approach with cryptocurrencies. Earlier this year, it began taxing virtual currencies, levying a 30% tax on the gains and a 1% deduction on each crypto transaction.
The nation’s move, alongside the market downturn, has severely depleted the transactions that local exchanges CoinSwitch Kuber, backed by Sequoia India and Andreessen Horowitz, and CoinDCX, backed by Pantera, process in the nation.
Changpeng “CZ” Zhao, founder and chief executive of the world’s largest crypto exchange Binance, told TechCrunch in a recent interview that the firm doesn’t see India as a “very crypto-friendly environment.” He said the firm is attempting to relay its concerns to the local authority about the local taxation, but asserted that tax policies typically take a long time to change.
“Binance goes to countries where regulations are pro-crypto and pro-business. We don’t go to countries where we won’t have a sustainable business — or any business, regardless of whether or not we go,” 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 amid a regulatory scare. Coinbase co-founder and chief executive Brian Armstrong said in May that the firm disabled Coinbase’s support for local payments infra UPI “because of some informal pressure from the [central bank] Reserve Bank of India.”
With more than 600 million connected users, India is the second largest internet market globally. The nation, home to one of the world's largest startup ecosystems, has attracted over $75 billion in investment from the likes of Google, Meta, Amazon, Sequoia, Lightspeed and Tiger Global in the past decade.