Cryptocurrency Framework

GS 3 – SCIENCE AND TECHNOLOGY

Background

The recent shift in the United States’ approach to cryptocurrency has prompted India to reconsider its own regulatory framework.

US Policy Shift on Crypto

• 2019: Former President Donald Trump expressed doubts about cryptocurrencies, arguing that Bitcoin and similar digital assets were highly volatile and lacked intrinsic value.
• 2024: Trump altered his stance, pledging to appoint regulators supportive of cryptocurrency with the goal of making the US a global leader in the sector.
• Recent Developments: Trump introduced a meme coin named $Trump and issued an executive order to establish a Strategic Bitcoin Reserve along with a US Digital Asset Stockpile.

India’s Regulatory Approach

• 2013: The Reserve Bank of India (RBI) first raised concerns about virtual currencies, warning of potential financial instability due to the lack of regulation.
• 2018: The RBI issued a directive prohibiting financial institutions from providing services to businesses dealing in virtual currencies.
• 2020: In the case of IMAI v. RBI, the Supreme Court struck down the 2018 directive, ruling that it violated the fundamental right to trade under Article 19(1)(g) of the Indian Constitution.
• 2021: The Indian government introduced a draft bill proposing a ban on private cryptocurrencies while simultaneously paving the way for a Central Bank Digital Currency (CBDC).
• 2022: A 30% tax on cryptocurrency earnings was introduced, along with a 1% tax deducted at source (TDS) on each transaction.

Why India Needs to Reevaluate Its Crypto Policy

• Global Regulatory Alignment: As cryptocurrencies operate beyond national borders, India must shift from restrictive policies to a more balanced approach, especially as major economies like the US adopt crypto-friendly regulations.
• Preventing Capital Outflows: Overly stringent regulations could drive investors and businesses abroad, resulting in loss of capital and economic opportunities.
• Growing Domestic Crypto Market: India has over 100 million crypto users despite regulatory uncertainties. A well-defined policy can support market expansion while protecting investors.
• Strengthening Cybersecurity: A robust regulatory framework can mitigate risks related to fraud, cybercrimes, and scams by enforcing strict compliance measures.
• Enhancing India’s Position as a Fintech Leader: Establishing clear regulations can attract foreign investment, support fintech startups, and contribute to overall economic growth.
• Facilitating Digital Rupee Integration: A balanced strategy would allow private cryptocurrencies and India’s CBDC to coexist while ensuring financial stability.