Act Now: India’s Crypto Regulation Can’t Be Left for Another Day
India topped global crypto adoption for the second year in 2024, with 119 million investors, nearly one-fifth of all crypto holders worldwide. However, despite this growing popularity, the country remains in a regulatory vacuum.
The absence of a regulatory framework is putting millions of crypto investors, including retail investors who dominate crypto exchanges in India, at risk. Cyberattacks, such as the recent $44 million heist at CoinDCX, are a major concern. Last year, WazirX had lost $234 million to theft.
Former finance secretary S.C. Garg has proposed mandatory licensing, transparency, insistence on Indian jurisdiction, and the functions of exchanges, brokers, aggregators, custodians, and other entities kept apart as the four cornerstones of a crypto regulatory framework. This framework would provide a sense of security and credibility to investors.
It’s time for Sebi, RBI, and the government to come together to create a sound framework for digital assets. The government has been quick to tax crypto gains, but it’s not enough. A regulatory framework would provide a level playing field for investors and ensure the safety of their investments.
The new law in the US, which requires stablecoins to be backed by liquid assets and requires issuers to disclose the composition of their reserves every month, is a step in the right direction. India should follow suit and regulate stablecoins, which are already in heavy use.
The US market could grow to $2 trillion by 2028, as Standard Chartered Bank estimated. For comparison, the market for gold is projected to grow to just $458 billion by 2032, according to Fortune Business Insights. India, alas, is yet to regulate cryptocurrencies. Even as India’s wealthy and not-so-wealthy seem drawn almost irresistibly to crypto assets, despite the risks, we remain in a regulatory vacuum.
A long-awaited discussion paper on the subject is yet to be released. Meanwhile, investors in these digital assets appear to be swelling steadily. According to reports, retail investors dominate crypto exchanges in India, making up 90-95% of users, though they account for only 30-50% of trading volumes, while high net-worth individuals and institutions are fewer in number (4-10%) but drive 50-70% of turnover with larger trades and their frequent use of derivatives.
India’s regulatory vacuum has seen several crypto exchanges rush in to meet demand, but the safety of these platforms is a wild guess. It’s time for Sebi, RBI, and the government to take action and fill the crypto vacuum before retail investors burn their fingers.
A Call to Action
Sebi must now join hands with the government and central bank to fill the crypto vacuum. The government should release a discussion paper on the subject and start the process of creating a regulatory framework for digital assets. This would provide a sense of security and credibility to investors and ensure the safety of their investments.
