India’s Wise Move on Cryptocurrencies

Why in news?

India’s vigil on cryptocurrencies protected investors from steep losses of Bitcoin market. 

What is the status of bitcoin market?

• Bitcoin is the most popular crypto currency, there was an upward spiral in the price of bitcoin last year, with value racing from $985 in January 2017 to $18,847 by December.
• This attracted investors by the drove, who viewed this as yet another avenue to make quick profits.
• Recently the crypto currency has faced slide in its market cap, as bitcoin prices are solely dependent on demand and supply.
• Due to the absence of an underlying asset, the prices of bitcoins are now down almost 80 per cent from their December peak.

What is the action of Indian government on crypto currency?

• Indian regulators and the Centre had been maintaining a vigil on crypto-currencies and had been cautioning users from time to time.
• In 2013 and again in 2017, RBI issued a statement warning against using crypto-currencies.
• Union government took the first step in dousing the buoyancy in these assets by stating in the Budget of 2018 that bitcoin is not a legal tender in India.
• Thus ruling out the possibility of these currencies becoming alternative mediums of exchange.

What is SEBI’s stand on crypto currencies?

• The Securities and Exchange Board of India seems to have desisted from passing any stricture against crypto-currencies as it viewed these as falling under the purview of RBI.
• This silence emboldened those trading in bitcoins and other crypto-currencies in various unregulated exchanges across the country.
• It was presumed that there was no harm in investing in these assets that promised inordinate returns.
• Therefore exchanges facilitating trading in crypto-currencies thrived up to the first quarter of 2018 and unfortunately, most of the naïve first-time investors would have bought these assets towards the end of 2017 or early part of this year, at peak valuations.
• The RBI’s move this April, to prohibit all entities regulated by it from servicing individuals or businesses that dealt in or settled in crypto-currencies, brought trading in crypto-currencies to an end.

What further measures are needed?

• The crash in crypto-currency prices in recent weeks makes it clear that they are highly unsuitable as an asset class for retail investors.
• SEBI needs to spell out its stance on these crypto assets in order to prevent a recurrence of such episodes.
• The RBI move to constitute a committee to explore the feasibility of rupee-backed digital currency therefore appears to be a good idea.
• Higher adoption of the block chain technology also needs to be encouraged.
• Thus currencies can be effective as a medium of exchange only if they are well regulated.

Source: Business Line