For years now, the Indian cryptoasset sector has been traversing a dizzying regulatory path.
Back in March this year, a three-judge bench of the Supreme Court delivered a historic verdict – overturning a ban imposed by the Reserve Bank of India (RBI) barring domestic financial institutions from providing banking services to crypto firms.
The official green-light from Indian authorities led to unleashed pent-up demand for digital assets, with reports suggesting that cryptocurrency trading volumes experienced a 400% uptick during the lockdown months.
Despite the surge in volumes, there is a lot of uncertainty prevailing around the overall crypto ecosystem, with market participants exposed to risks in a policy vacuum.
And now, the latest development is that the government is deliberating cracking the whip on crypto again with a new draft bill that proposes an outright ban on cryptocurrency trading in the nation.
The atmosphere is thick with anticipation of Indian lawmakers’ next move. Yet, despite all of the uncertainty, the nation’s digital asset market continues to attract global investors.
One of the investors who set his sights on India in a big way this year, is high-profile venture capitalist Tim Draper, who is known for his early investments in Skype, Tesla, Twitter, and Robinhood.
Last week, he led investment into Unocoin, one of India’s oldest cryptocurrency exchanges, which has seen the number of new users grow 10-fold since the Supreme Court quashed the banking restriction by the Central Bank.
Besides Tim Draper, a number of venture capitalists have invested in crypto companies in India. CoinDCX, another Indian crypto exchange, has raised millions of dollars from investors including Polychain Capital, Bain Capital Ventures, Bitmex operator HDR Group, and Coinbase Ventures.
London-headquartered online banking platform, Cashaa, last week raised $5 million from the Dubai-based investment advisory firm O1ex, and plans to launch a crypto-friendly neobank (aka internet bank) in India.
Furthermore, global cryptocurrency exchange giant Binance set up a $50 million fund for investing in crypto and blockchain startups in India. They also acquired major Indian exchange WazirX, and became a member of the Indian Tech Association, a key organization that aided in the Supreme Court’s rejection of the RBI’s proposal.
Indian crypto exchange BuyUCoin recently prepared a draft ' sandbox' framework to help bring some clarity to India’s regulatory space. The advantage of a regulatory sandbox is that it allows testing of products in a closed environment, and more importantly, in a regulatory vacuum. Countries including South Africa, the US and the UK have been experimenting with this approach.
Two outcomes may emerge from this exercise. First, the RBI may choose to enforce a ban on digital assets, but armed with supporting evidence to justify its stance. Or secondly, the RBI may choose to regulate cryptoassets – and this could vary from light touch to a more heavy-haded approach.
Dmitry Tokarev, CEO at Copper, argues that without regulations, India will miss out on opportunities that are enjoyed by many markets around the world.
He commented: “Though March’s landmark ruling was a stunning triumph for the country’s digital asset industry, lifting the overarching ban merely moved digital assets into a gray zone. We strongly believe that an outright ban on the use of digital assets is not the answer. A robust legal framework that incorporates all stakeholders would be a better way of supporting ambitious innovators, and ensuring market participants are protected from nefarious activities. The time has now come for Indian policymakers to allow the digital asset sector to flourish in the country.”
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