Regulation
Here is some valuable information for India
By Nischal Shetty
It’s an interesting time for US regulators. The SEC has suffered setbacks in several key court cases, was forced to reverse course and allow spot ETFs for Bitcoin and Ethereum, and recently had to wave the white flag in its battle with Consenys, a key Ethereum backer. That’s all changed for Gary Gensler, a former Goldman Sachs banker who taught blockchain at MIT. With 2024 being an election year in the US and crypto users being single-issue voters, the stage is set for a lot more fireworks on the regulatory front as the election approaches.
A sensitive area
Cryptocurrency regulation is a sensitive area and could be implemented without a fight from all parties involved. As India continues to shape its own regulatory framework for digital assets, understanding the challenges and missteps of US regulation offers valuable lessons.
The cryptocurrency industry in the United States has faced many regulatory challenges, and the SEC’s accomplishments are notable for both what it has accomplished and what it has not accomplished. One of the main arguments against the SEC is that it has targeted legitimate, compliant entities such as Coinbase, Kraken, and Uniswap, while major scandals involving entities like FTX, Celsius, BlockFi, Terra, and Three Arrows Capital (3AC) have gone unnoticed until it is too late.
This focus on established, compliant businesses rather than actual fraudulent activity has not only stifled innovation, but has also discouraged many crypto businesses from offering their products and services to U.S. citizens.
Obstacle to blockchain development
By cracking down on utility tokens and focusing heavily on their application rather than fostering an environment conducive to innovation, the United States has forced many token developers and innovators to relocate outside the United States.
This approach has created a regulatory climate that is holding back the development of blockchain technology’s full potential. One of the main criticisms of U.S. cryptocurrency regulation is the lack of clear and consistent guidelines. This uncertainty has put startups and established businesses alike in a difficult position, unsure of how to comply and fearing sudden legal action.
The best example of this mismatch of priorities is how the SEC has gone after Ethereum. The true value of tokens like Ethereum’s ETH lies in their utility within the network, facilitating operations like transactions and smart contracts, not just as speculative instruments. Regulators need to recognize and support the utility aspects of these tokens, rather than focusing solely on their financialization potential.
Lessons for India
As India continues to develop its regulatory framework for cryptocurrencies, it can take a leaf out of the US experience to avoid similar situations.
Pitfalls must be avoided and a more enabling environment for digital assets must be fostered. India must strive for a balanced approach that supports innovation while protecting investors – the Goldilocks Zone; regulation that is neither too strict nor too lenient.
By focusing on the utility of blockchain technology rather than its speculative aspects, regulations can encourage the development of meaningful solutions that have the potential to transform sectors such as finance, supply chain management and public administration.
One of the key lessons from the US experience is the need for clear and consistent regulatory guidelines. India has an opportunity to lead by example by providing a transparent and understandable regulatory framework for all stakeholders. This clarity can attract more entrepreneurs to the digital asset sector, confident in their legal status and understanding of compliance requirements.
This is critical as it provides law enforcement agencies (LEAs), such as the Enforcement Directorate and regulators such as the Reserve Bank of India, with enhanced tools to effectively target malicious actors, while fostering collaboration with compliant organizations.
Exchanges registered with the Financial Intelligence Unit (FIU) demonstrate proactive commitment by filing suspicious transaction reports (STRs) and strictly adhering to anti-money laundering (AML) and know-your-customer (KYC) policies.
This proactive approach was already in place even before the official inclusion of cryptocurrencies in the Prevention of Money Laundering Act (PMLA), demonstrating a commitment to regulatory compliance and industry best practices. This strategic alignment between regulators and compliant platforms is essential to foster a safe and robust digital asset environment in India.
Regulators should also work to educate the public and policymakers about the potential and risks associated with cryptocurrencies. By fostering a better understanding of this technology, India can foster a more informed ecosystem that fosters responsible innovation and the use of digital assets.
The regulation should encourage participation from a wide range of stakeholders, including startups, existing financial institutions, and individual investors. This inclusive approach can help develop a vibrant and innovative crypto ecosystem in India.
It is essential to create regulations that prevent abuse and fraud, but also promote the legitimate use of crypto technologies. Taking a cue from the United States, where excessive regulation has sometimes stifled legitimate business activities, India can seek to support useful innovations that leverage blockchain technology.
The state of cryptocurrency regulation in the United States provides a compelling case study in the complexities of governing a rapidly evolving digital asset landscape. For India, which is at a crucial juncture in its own regulatory journey, there are clear lessons to be learned. Adopting a balanced, clear, and innovator-friendly approach can not only avoid the pitfalls seen in the United States, but also position India as a global leader in cryptocurrency innovation and regulation. In doing so, India can harness the full potential of blockchain technology to drive economic growth and technological innovation.
(The author is the founder of WazirX)
Disclaimer: The opinions, beliefs and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs and views of ABP Network Pvt. Ltd. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any losses resulting from such transactions. Cryptocurrency is not legal tender and is subject to market risks. Readers are advised to seek expert advice and carefully read the offering documents and related material literature on the subject before making any type of investment. Cryptocurrency Market predictions are speculative and any investments made will be at the sole cost and risk of the readers.