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India’s Crypto Economy | Regulating Crypto As A Commodity

India’s Crypto Economy | Regulating Crypto As A Commodity

Amid reports of crypto being classified as a digital commodity, the big question will now involve regulatory approach and taxation policy

Dear Reader,

One of the biggest news stories you must have read by now is that the Indian government may allow crypto as a commodity for use cases, including payments, investments and utility. And the taxation policy will vary accordingly.

Meanwhile, crypto exchanges and brokerage startups in India — WazirX, CoinSwitch Kuber, Unocoin, CoinDCX, ZebPay and Bitbns — have nearly doubled the value of their daily transactions.

For instance, WazirX, which used to clock daily transactions worth $120-150 Mn on average, has recently hit $290 Mn.

That is good news for crypto enthusiasts, and so is crypto’s soon-to-be-expected ‘commodity’ status. The finance ministry is yet to confirm the news officially, but it has got the ball rolling. The next big questions popping up now are all about clarity in taxation, the formation of regulatory bodies and other pertinent topics.

Commenting on this, Subhash Chandra Garg, former secretary, department of economic affairs, ministry of finance who chaired the interdisciplinary panel on crypto in 2018, said, “When people refer to crypto as commodities, they probably mean it in the context of assets, not as commodities. Securities are also assets that represent underlying assets- equities, bonds, derivatives. Therefore, if the policymakers and regulators can treat cryptos as crypto-assets, which may represent different crypto-assets like crypto-currencies, crypto-securities or values of underlying or connected crypto-businesses, like application platforms, NFTs, digital assets etc., that should be the best way forward.”

To understand the next phase of potential developments, let us take a quick look at the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. It has two key elements:

  • Central Bank Digital Currency (CBDC)
  • Crypto Assets

While CBDC, which stands for fiat cryptocurrencies, falls under the purview of the RBI, capital markets regulator SEBI has been responsible for regulating the commodity derivatives market. If crypto comes under commodities, SEBI should be the institution to regulate crypto.

However, there are questions regarding SEBI’s ability to regulate crypto.

According to Archit Gupta, founder and CEO of Clear (previously Cleartax), “It is difficult to form a frame of reference for the digital currency prices quoted on the spot market. Although these can be observed, you cannot connect these prices to underlying assets, and the demand-supply part is less clear compared to other commodities.”

In the past, SEBI expressed its unwillingness to handle crypto on multiple occasions. But does it indicate that the market regulator lacks adequate technology and knowledge to handle it?

Inc42 spoke to a SEBI official to understand the regulatory body’s point of view on this. Speaking on the condition of anonymity, the official said that SEBI is an active member of various international bodies such as the International Organisation of Securities Commission (IOSCO) and its Asia-Pacific Regional Committee (APRC), which have made their stand clear on regulating crypto.

IOSCO has released a final report covering the issues, risks and regulatory considerations relating to crypto-asset trading platforms. It has also laid out a slew of guiding principles covering crypto as securities and crypto as commodities. As and when the matter comes to SEBI, its regulation will be in line with the IOSCO principles.

“SEBI is essentially an asset regulator with assets in the form of securities, equities, bonds and derivatives. Commodities derivatives have also been turned into securities. SEBI has been designated as a regulator of gold too. The RBI is essentially a money and credit regulator. Therefore, the regulation of crypto-assets could best be entrusted to SEBI,” said Garg.

When the crypto regulation is in place, SEBI is expected to standardise the crypto trading system. This may include eligibility criteria of crypto-assets, which means not all crypto-assets can be easily listed on all platforms, besides clearance and settlement processes, cybersecurity norms and more.

Have You Registered For The Crypto Summit Yet?

After reports emerged that India might regulate crypto as a commodity, there was enough confusion regarding its use cases, ICO, taxation policies and more.

Given this scenario, there could not have been a better time for The Crypto Summit to address all these issues and concerns under one virtual roof. We are hosting The Crypto Summit 2021, India’s largest crypto and blockchain event, on September 18-19 September, in association with CoinSwitch Kuber, Polytrade, Tezos Persistence and Onfido.

During the two-day event, participants can meet thought leaders and experts from India and abroad. The list reads like a who’s who of the industry and includes Subhash Chandra Garg, former secretary, ministry of finance; Shailesh Lakhani, managing director, Sequoia India; Sandeep Nailwal, cofounder and CEO of Polygon; Raj Gokal of Solana and Gautam Chhugani, director (crypto) at Bernstein, among others.

They will discuss India’s crypto landscape, crypto as an asset class and a host of relevant topics, providing an immersive blockchain experience to the audience.

Be Part Of The Crypto Summit!

For Binge Reading 

Institutional Opportunities In DeFi: Enabled by Ethereum blockchain, decentralised finance, or DeFi, has grown 20x in 2021 alone, attracting millions of users, leading financial institutions, funds, exchanges and whatnot. In this article, the blockchain platform ConsenSys explores some of the major institutional opportunities in the DeFi space. Read it here.

Crypto-Fuelled Meme Economy: A meme goes viral. And money is made. Right from GameStop and Dogecoin phenomena, the meme economy has been growing every passing day and has found a new way of making money via NFTs. In fact, meme investing has developed as a result of ‘user-generated’ investment strategies. In his latest blog, Harry Jones, a meme tsar at Dank Bank, a stock market for memes, delves into the making of the meme economy.

Tweet Of The Week

Crypto has given a new meaning to digital. AngelList cofounder and investor Naval Ravikant, in a recent tweet, said that every digital object in future might be used to store value, given it has a credible fan base.

Crypto This Week | News Doing The Rounds 

SolRazr Closes $1.5 Mn Seed Round

Solana blockchain-supported venture platform SolRazr raised $1.5 Mn in seed funding from Moonrock Capital, Ascensive Assets, Morningstar Ventures and others. The Singapore-headquartered company also unveiled the first decentralised developer ecosystem for its blockchain, comprising launchpad, accelerator and developer tools.

Designed to be the de-facto fundraising and developer platform for projects built on Solana, SolRazr aims to support the growth of decentralised finance (DeFi) on its high-performance network.

NFT-Focused Blockchain Analytics Startup bitsCrunch Raises Seed Funding

Chennai- and Germany-based blockchain startup bitsCrunch, which monitors NFT marketplaces and the entire NFT ecosystem, raised $750K in a seed round from a clutch of investors, including Covalent, Double Peak, GenBlock Capital, Ledger Prime, MEXC Global and Synaps.

Backed by Rarible and Polygon, the company will use the money to launch products, expand its infrastructure to facilitate other blockchains and grow its team size and capabilities. It also aims to build integrated platforms to help develop safe and non-manipulative marketplaces.

Global Crypto Exchange CrossTower Enters India

With the crypto market booming in India, the US-headquartered digital currency exchange CrossTower decided to launch its crypto trading platform in the country. Set up in 2019 by Kapil Rathi and Kristin Boggianoand, CrossTower launched a multi-asset trading platform last year and then added a capital markets desk to cater to hedge funds, family offices and other market participants.

Crypto Exchange OKEx Sets Up DeFi Hub In India

Global crypto exchange OKEx, which specialises in spot and derivatives, has set up a DeFi Hub in India. The company has also launched an NFT marketplace and a DeFi dashboard as two core products of the hub.

After Amitabh Bachchan, Sunny Leone Launches NFTs

With NFTs throwing open a new global market for pornographic content, many pornstars are now launching their own content. As the craze takes over India’s celeb world, Bollywood actress and former pornstar Sunny Leone has rolled out her own NFTs through Silicon Valley-based Mintdropz.

Coinbase, U.S. SEC At Loggerheads 

Leading crypto exchange Coinbase is at war with the U.S. regulatory body Securities and Exchange Commission (SEC). The company planned to introduce its lending product in the U.S. market, but the launch was blocked by the SEC without giving any clarification.

This is, indeed, a reality check for many entrepreneurs who tend to think that all operational hurdles will be over when there is a regulatory framework in place. The truth is, they may still continue to struggle as policymakers often rule with a heavy hand.

Till Next Week,

Suprita Anupam