Well with the announcement of the 2022 Union Budget on February 1st of this year, Finance Minister Nirmala Sitharaman finally shines new light mostly on the government’s approach to cryptocurrencies.
The proposal would levy a 30% taxation upon exchanging crypto assets, and even a 1% transaction fee, which has sparked controversy inside the startup community, which has already been shaken by the proposal that prohibits crypto deficits from just being offset against all other assets.
Nevertheless, in the cold light of reality, this judgment seems to also have taken the administration on a gentler policy path than it should have.
Bring Cryptos In India Can Bring New Difficulties
Nevertheless, during his monetary policy speech 17 days later, the RBI governor, Shaktikanta Das, for the very first time publicly cautioned investors that they’d be investing in cryptocurrencies at their own risk because they had no underlying asset – ‘not even a tulip’.
Both these viewpoints actually indicate that a clear cohesive policy plan for the cryptocurrency environment, or even the virtual digital currency environment, will still be in the works.
And that is not so because the government does not have to make good policy; instead, its real process demands taking into account a wide range of factors.
The Violent Messaging Surrounding Crypto
The previous year has witnessed a surge in the number of crypto exchanges in the nation, and based on the advertising shown during the recent IPL season, the average man’s path to fortune was through cryptocurrency investing.
The accompanying advertising concentrated just on the country’s widespread adoption of cryptocurrency, including ‘experts’ suggesting that nearly 100 million people held any sort of cryptocurrency.
The argument was that banning cryptocurrency would harm many people and that the rise of digital money was unavoidable and could not be halted with cash.
The administration intended to introduce a bill to regulate cryptocurrencies during the winter session of Parliament. However, it was postponed because the administration did not want to be perceived as ‘anti-technology.
‘The Bill proposes normalizing crypto assets throughout order to promote blockchain while simultaneously prohibiting crypto from being used as a medium of exchange.
This train of reasoning is riddled with gaps. Unlike other assets like as property and jewelry, cryptocurrency is not only divided & movable, although it is simple to swap. When we combine everything with the damaging factor of anonymity, we have an entity that can be utilized for a wide range of illicit acts, especially terror funding.
That much more crucially, it is unfathomable to think cryptocurrency can indeed be employed in the very same way that conventional assets, such as mortgages, can. No financial institution will loan against a volatile asset like cryptocurrency.
A Speculative Investment
The main issue with cryptocurrency is that it lacks basic value because it is not backed by any governmental entity or institution, leaving no possibility for reparation.
Crypto is largely a speculative asset with no underlying value, raising the possibility of a bubble that might collapse at any time.
The issue is that, unlike other assets that encourage speculation, like as equities, crypto lacks a regulating authority that safeguards the interests of the average user. Given the blockchain’s decentralized character, it is also impossible to form a regulating authority.
The Government Has Walked A Tightrope
The RBI has also been developing its own digital money that might be similar to the digital wallets established by China.
However the exact features are unknown, the RBI has stated that the digital rupee would be similar to paper rupees in that the form will be electronic or digital and will be saved in one’s cellphone with one-to-one convertibility.
Given the decentralized nature of the blockchain and the fact that this digital currency would be centrally managed by the apex bank, it will be fascinating to watch how they integrate blockchain in its construction.
We’ll have to wait and see if such a digital currency is prone to similar volatility and susceptible to speculation in the coming days.
To discourage individuals from investing, a harsher but more feasible approach would be to bring crypto exchanges within the purview of the Goods and Services Tax (GST) and levy a 28 percent sin tax on all crypto transactions.
Meanwhile, we’ll have to wait and watch whether a revised crypto regulation Bill emerges shortly to provide some order to the turbulent world of virtual digital currency.