Cryptocurrency has become the favourite topic of dinnertime conversations
all around the globe. Alike other investments, its novelty attract people with a
hope to tap huge profits in very less time and effort. Cryptocurrency is a
virtual currency secured by cryptography, which makes it nearly impossible
to counterfeit. Simply said, it is digital currency stored in a wallet with
values attached to it, which could be transferred to other person who holds the
same currency in their wallet through typing an id number and password by the
sender. Now the question arises that what created a space for Cryptocurrency in
the world of Fiat Money.
There are two factors which can be considered as the stimulating force behind
origin of Cryptocurrency:
- Society's desire to control money flow (today it is done by banks)
- Deter the regulatory approach of government to keep an eye on every
transaction made by general public.
Today the cryptocurrency market constitutes a market capitalisation of $1.5
trillion which is more than the GDP of 90% nations in the world. A handsome
number of populations around the globe trade in cryptocurrency globally.
According to the sources there are 7.5 million of investors in India and this
number is going to skyrocket in the coming days as per the experts.
The Crypto wave in India started in April 2020 when on one side the stock market
was touching new lows daily and cryptocurrency, on the other side was making
fortunes. Initially it lured millennial but later got backed by mammoths like
Elon Musk which gave a cogent hope to people. Now when it is being seen as a
potential threat to governments all around the world they want to make
regulators to be in the driver seat, as it is posing many difficulties to people
Regulator for Cryptocurrency is the need of the hour:
In India there are some misnomers that government has intent of totally banning cryptocurrencies
in India but the reality is that the government wants regulate such as SEBI or
RBI, not ban as it has serious concerns which needs to be acknowledged. Such
The complex blockchain technology of Cryptocurrency makes it almost impossible
to trace the one who made the transaction. Although it has less transactional
value in relation to the federal issued currency but despite being a new
investment instrument it has sizeable investment value today in markets.
The most significant stimulus to frame a regulatory framework for cryptocurrency
is its immensely high volatility. This can be evidenced by some stats such as,
in the beginning of 2018 1 bitcoin= $18,336 to low of bitcoin= $3400 in June
2019 additionally, in March 2020 with a low of $4945 to $58332, an all time high
on 22nd February 2021. This volatility wipes out the investors money in very
short durations and poses a serious threat to financial stability of people as
per International Monetary Fund. FATF Report to G-20 summit expressed its
concern on impact of volatility on financial health of people. India is a middle
income country where mostly people are lower middle class and middle class which
creates a high probability of insolvency of people.
Financing Terrorism and Illegal Activities:
According to the Global Terrorism Index 2020 India has been ranked as the 8th
most affected nation by terrorism in the world due to which this factor has a recognisable significance
especially in India. Cryptocurrency has emanated to be the new, preferred and
lucrative means of Fund Transfer for Terrorist organisations which poses
a threat to our National Security. Moreover its anonymity as well as its
non traceability makes it a heaven carrier for the money transfer to supplement
their illicit objectives.
It has been a headache for the financial experts in India to categorise
Cryptocurrency into as asset class due to lack of any sovereign backing and its
ultra high volatility. These changes create multiple difficulties in taxation
laws of our country. Its classification is much needed step to be taken because
it erodes people's fortune in just few clicks.
Existential Challenge to Central Bank:
With the rise of global acceptability of Cryptocurrency, a serious threat to the
flat currency and central bank authority will occur and question the dogma of
Some suggestions which can be considered for regulations of Cryptocurrency:
- The Regulators shall focus on minimal and important compliances for
Cryptocurrency investors to comply and avoid non necessary compliances as it
will discourage its growth which is undesirable.
- Due to volatility the regulators shall put some investment limits for
small investors alike in angel fund and venture capital investments so that
the retail investors shall not face heavy losses and get their capital
investments so that the retail investors shall not face heavy losses and get
their capital wiped out due to volatility.
- The government shall provide a safer blockchain technology to avoid
cyber attacks and make a sufficient monetary limit on the transactions which
the government authorities can track.
- The government shall launch its own cryptocurrency to provide it
an astounding credibility in the eyes of investors and encourage public to
invest into it.
The fundamental tenets of Cryptocurrency lie upon Democratization of Finance as
well as reduction of power of financial institutions to channelize the money. It
is quite paradoxical to comment but indeed it's a truth that Cryptocurrency
needs a regulatory body to make it a credulous investment for the long run. The
government as well as investor has their own views which are equally imperative
and needs to be addressed by the regulators in the coming future.