News
Cryptocurrency News: The Economic Impact of Indian Cryptocurrency Legislation on the Global Market
As one of the emerging markets for virtual digital assets (VDA) in the world, India’s role in driving crypto adoption has been influential. In 2023, a major global survey revealed that India was at the top of crypto adoption in the world, leaving behind the US, UK, China, Brazil, Russia, and Japan. This growing popularity of cryptocurrencies in India has led the Indian government to contemplate robust legislation on the domain, especially after the Supreme Court struck down the Reserve Bank of India’s (RBI) ban on this new asset class. Cryptocurrencies remain largely unregulated across the world. The 2023 G-20 summit, where India presided as the Chair, highlighted the establishment of a collaborative and global network of cryptocurrency regulations that has gathered momentum from the participants. This has been driven by the Indian Cryptocurrency and Official Digital Currency Regulation Bill, 2021, which is yet to be introduced but is becoming an appropriate necessity for the times. Currently, cryptocurrencies are taxed at 30% on earnings, while an additional 1% is deducted from earnings. In the meantime, the Crypto Bill aims to establish a regulated framework in the domain that will assist in the creation of official digital currencies.
GOI’s View on Cryptocurrencies
India has been a leading advocate for global cryptocurrency regulations, and similar sentiments were echoed at the G20 summit in 2023. The RBI has historically maintained a cautious approach towards cryptocurrencies, however, it has come up with a strategy for establishing a national blockchain ecosystem in December 2021. The central bank has also proposed cryptocurrency regulations through a report in 2023, where it has emphasized prohibition, containment, and regulations. It has also advocated for a global collaborative approach to achieve the same, a proposal that was presented at the G20 summit.
Despite these efforts, virtual digital assets such as cryptocurrencies remain unregulated and unprohibited in India. However, cryptocurrencies are not considered legal tender by the Indian government, which has repeatedly revealed its intention to reduce their influence to fund illegal activities. This is one of the main reasons behind India’s openness to establish a regulatory framework for cryptocurrencies, whose financial impact could be significant in a global market.
Financial impact on the global market
Since the advent of cryptocurrencies, they have remained a controversial topic due to their decentralized and unregulated nature. However, the view of cryptocurrencies by global governments has changed significantly in recent months, as the United States House of Representatives recently passed a landmark cryptocurrency bill. However, other global governments such as the European Union and India have expressed the need to regulate this new asset class, which can have a significant financial impact on the global market. Let’s look at some of these impacts from a holistic perspective.
Reduction in trading volume
Although there is no ban planned, India is looking to introduce strict regulations to manage cryptocurrencies. Along with high taxation, these regulatory measures in India could be imitated by other key markets, which could lead to a significant portion of investors losing interest in trading in this asset class. This will lead to reduced trading volumes in the market, which could lead to significant consolidation or price declines.
India boasts one of the highest rates of cryptocurrency adoption in the world, and a lack of participation from Indian investors could also lead to instability in the cryptocurrency market. Furthermore, a unified approach in trying to establish a collaborative measure in cryptocurrency regulation, led by India, can also introduce instability in the cryptocurrency markets.
Repositioning of investors’ capital
The cryptocurrency market is already infamous for its high volatility, and when the legality is questioned, many investors may want to exit their position and focus on conventional asset classes. Coupled with high taxation, this may seem more advantageous for Indian crypto investors. However, this could be good news for other crypto-adopting markets in the US, UAE, and elsewhere, where government policies are much more favorable to this new asset class. Additionally, institutionalized investors and whales based in India and other countries where regulations become strict may also decide to reposition their capital similarly to retail investors, which could potentially pose a concern for the cryptocurrency market.
Conclusion
Since the true scope of India’s cryptocurrency bill is yet to be revealed, the financial implications for the broader market can only be speculated. For the uninitiated, cryptocurrency’s global dominance is still in its infancy, and understanding the long-term consequences is often futile due to market volatility. However, the overall economic implications of India’s cryptocurrency bill cryptocurrency legislation It can also have a positive impact on increasing the rate of cryptocurrency adoption among citizens, giving a much-needed boost to cryptocurrencies to become a pillar of the global financial ecosystem and helping to limit bans in several key markets around the world.
(The author of the article is Roshan Aslam, founder and CEO of GoSats)
(Disclaimer: Recommendations, suggestions, opinions and views provided by experts are personal. They do not represent the views of the Economic Times)
(You can now subscribe to our ETMarkets WhatsApp Channel)