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Is RBI's stance against crypto worrying? Here's what experts have to say

India Today logo India Today 27-08-2022 Harsh Kumar

Governor of India's central bank, RBI, (Reserve Bank of India) Shaktikanta Das has continued to maintain his strong stance against cryptocurrency. Recently, while talking to a TV channel, Das spoke about crypto's ability to cause financial instability.

"Crypto can create a lot of financial instability in terms of the ability of the central bank to determine monetary policy. It can also have an adverse impact on our exchange rate, on capital flows, on banking sector stability and the potential for being used as a tool for money laundering and for illicit transfer of money," RBI governor told ET Now in an interview on Tuesday, August 23.

What does this mean for future of crypto in India?

Former Finance Secretary of India Subhash Chandra Garg, while talking to India Today, said that RBI wants private cryptocurrencies banned. "RBI promises to start pilot of official wholesale digital currencies this year. Whether that would be cryptocurrency or something else we don't know. It is impossible to stop the development of blockchain-crypto-graph-based businesses, assets and currencies," he said.

He further noted that it might be in the best interest of country for RBI to come up with a robust digital or data currency and to figure out how best to live with the strong blockchain platform with their own cryptocurrencies and the stablecoins.

However, a former member of RBI high-level committee, Dr. Aruna Sharma believes that there is need for practitioners to come up with a logical explanation on why cyber attacks occur and an explanation on records are omitted on the blockchain to avoid traceability. These practitioners also need to tell what steps are being taken for KYC and how blockchain and crypto are interlinked. "Random statements do not help. It is equally important to document organisations indulging in crypto payments and the percentage of breach there," said Sharma.

Earlier in July 2022, Das said that cryptocurrencies are a "clear danger", adding that anything that derives value based on make-believe is just speculation under a sophisticated name.

"While technology has supported the reach of the financial sector, its benefits must be fully harnessed, and its potential to disrupt financial stability has to be guarded against. As the financial system gets increasingly digitalised, cyber risks are growing and need special attention," Das said in the foreword to the RBI's Financial Stability Report, June 2022.

What does the crypto industry believe about crypto's future?

Some industry experts believe that cryptos have already made their space in the Indian market or it will be better to say among the Indian investors. "However, the high taxation and its complex application is hurting the traders. Until there is a clarity about crypto regulations, we believe that Indian investors will be cliffhangers to the volatility," says Dileep Seinberg, Founder & CEO, MuffinPay, Fintech-Crypto Venture for Bill Payments.

As per various reports, there are over 15 million crypto users in India. "For the Indian investor, the crash in prices after a multi-year bull run in the market has coincided with unreasonable taxation policies, continuing lack of clarity around regulations as well as regulatory actions against and bankruptcy of certain Indian companies," says Mohammed Roshan, CEO & Co-Founder of GoSats, a Bitcoin Rewards Company.

According to a recent estimate by BlueWeave Consultancy, a strategic consulting and market research business, the worldwide cryptocurrency market will be worth USD 1.3 billion in 2021. By the end of 2028, the market is anticipated to generate revenues of around USD 2.8 billion at a CAGR (Compound annual growth rate) of 12.2 percent.

How is the crypto industry running in India?

In recent times, the ED (Directorate of Enforcement) has cracked down on various Indian crypto exchanges including, WazirX, Coinswitch Kuber, Giottus, CoinDCX and even Vauld that's operating out of Singapore. The 30 percent taxation on VDAs (Virtual Digital Assets) amplified the pace of fall in the trading volumes of major country's crypto exchanges.

Zebpay, one of India's crypto exchanges, said that they have added more than 6 lakh customers since February 2022, while Giottus' number is more than one lakh investors, Coinswitch Kuber denied sharing data while WazirX stands in the same position.

Despite the negative sentiment around crypto in India, the adoption rate hasn't taken a major hit with people between the age group of 18-35 exploring crypto investments.

Crypto is an emerging asset class. Hence, Parth Chaturvedi, Crypto Ecosystem Lead, at CoinSwitch Kuber recommended investors not to act under emotion. Investment decisions should not be emotional. Do not fall for peer pressure. "Every individual should understand their risk appetite, and plan their portfolio accordingly. Study the markets and projects you have invested in. And do not try to cut corners with tax compliance," he said.

Why are millennials 'crypto crazy' despite an anti-crypto market?

The crypto market is continually witnessing its lowest drop. Despite that, the number of new users being added to exchanges has been on the rise.

Some experts deny the anti-crypto market sentiment by saying that it is a bear phase that will lead to consolidation. "It is general and cyclical in nature. It usually happens for any other super bull in the crypto space, which creates new winners over the years," says Seinberg.

Millennials and Gen Z find this space more creatively liberating and hence we see a major rush from this age group in the industry. "The opportunities in this industry are huge and they are not restricted to any geography. One reason why the industry in the country is still seeing a lot of interest - you can get involved from anywhere on Earth. Especially with the current NFT & metaverse buzz that took off early this year, the space has opened up to a larger audience of many types of creators and entrepreneurs from different walks of life," says Shantanu Sharma, VP, Growth & Marketing, EasyFi Network.

Moreover, some have accepted the fact that taxation is a big jitter but it is neither the only one nor the biggest one. "What is hurting the crypto markets is the double whammy of exodus and indigenous factors that have hit the market hard together. Negative news flow about platforms and projects, coupled with inflationary concerns, rate hikes by the central banks and geopolitical worries have hit the markets hard. On the other hand, no benefits for the investors have left limited room for the traders to make some money," added Sharma.

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