Economic Survey flags concerns on Crypto, pushes for global regulation

Survey said events such as collapse of crypto exchange FTX have put vulnerabilities of the sector in focus

This year’s Economic Survey is notable for its expansive discussion on cryptocurrency. The Survey, which presents a summary of the nation’s economic performance vis-à-vis major global and domestic financial trends, has for the first time presented a detailed analysis of the digital currency. The Survey also emphasised on the need of international collaboration to frame crypto regulations.

Commenting on the collapse of the crypto exchange FTX and the subsequent sell-off in the market, the survey said that these events have put the vulnerabilities of the sector in focus. FTX, which was once the third largest exchange in the world, filed for bankruptcy in November last year. Its co-founder Sam-Bankman Fried is being charged for fraud in the US. The government's document said that these digital assets do not “strictly pass” as financial assets because they have no intrinsic value. Moreover, their cross-sector and cross border nature limits the effectiveness of separate national policies. “The geographically pervasive nature of the crypto ecosystem necessitates a common approach to the regulation of these volatile instrument,” it said.

Presenting a global survey of common regulations in place across countries and geopolitical regions like the United Kingdom, Japan, Switzerland and others, the Survey made a strong case for more stringent regulation. “Global standards need to be comprehensive and consistent; regulatory responses must be based on standard taxonomies, reliable data to address contagion effects, and flexible enough to be adjusted in the future based on market developments and future international standards,” it argued.

The emphasis on global collaboration for designing a regulatory response to cryptos has been welcomed by industry leaders especially in the wake of India’s G20 presidency.

Rajagopal Menon, the Vice President at WazirX believes this is a major development in the wake of India’s G20 presidency. “With India as the President of the G20, we can set the agenda for regulation which the rest of the world will follow. In general, the fundamental regulatory principles used in the conventional banking industry can be adapted in the cryptocurrency industry. This could include requiring exchanges to implement similar measures, such as stringent KYC requirements, transaction monitoring, reporting suspicious activity, and strict internal controls for the purpose of discovering and preventing money laundering and other illegal activities,” he said.

Other industry players such as Ashish Singhal, co-founder of CoinSwitch, applauded the Chief Economic Advisor, V Anantha Nageshwaran’s balanced approach to cryptocurrencies.

Singhal said, “While taking a cautionary approach to crypto, the Chief Economic Adviser suggested that regulators could consider centralized intermediaries as systemic financial market infrastructures. This is in contrast to alarmist calls to ban or simply wish away crypto. As the Survey puts it, there is a need for a common approach to regulating the crypto ecosystem. Our hope is India too will move in this direction and not take any regressive measures on crypto.”

Here's a look at how industry players and experts reacted to the Eco Survey’s inclusion of crypto currencies.

 

Vikram Babbar, Lead, Financial Services, EY:

 

“Addressing risks and challenges around the rising popularity of cryptocurrencies will be imperative given the global incidents around fraud and financial crime are impacting the financial sector. Multiple Governments are considering regulations and frameworks to minimise the vulnerabilities in the crypto ecosystem. Introduction of Regulatory frameworks may lead to crypto co-exist with other digital currencies.”

 

Edul Patel CEO and Co-Founder of Mudrex:

 

“Cryptocurrency is a rapidly growing asset worldwide. The FTX crash prompted governments globally to draft regulations to prevent such events and protect people's money. Effective regulation is crucial for fostering innovation and combating money laundering and fraud. As cryptocurrencies are global, India cannot regulate them alone, and calling for global standards that can be adapted to future international standards is a progressive step. With India holding the presidency of the G-20 summit this year, the topic of cryptocurrency is also being discussed among the member countries. This provides India with the opportunity to set the tone for global regulation of cryptocurrencies.”

 

Kiran Vivekananda, Chief Public Policy Officer, CoinDCX:

 

“It is comforting to see the Economic survey of India highlighting the dire need for a common global approach towards crypto regulations. The Economic Survey also points out some challenges associated with space making it imperative for the policymakers and industry experts to come together to develop a framework for this complex, disruptive, dynamic, yet critical space. Given its borderless nature, global cooperation is also key. India's G20 Presidency, in my view, is an opportune time to take this conversation forward. As a leading player in the Indian Web3 ecosystem, CoinDCX is committed to addressing all of these concerns and spreading awareness about the nuances of this space.”

 

Punit Agarwal, Founder, KoinX:

 

“India has always been pushing for global regulations on crypto assets both at OECD and G20. The Economic survey has lighted the urgent need of regulating this Industry while also ensuring it is flexible to meet the dynamic needs of the Industry.”

 

Rohit Arora, CEO and Co-founder, Biz2credit and Biz2X:

 

“The Economic Survey is correct in stating that there is a need have global regulatory standards for crypto currencies. While this is easier said than done as right now the FTX meltdown in the United States has created a regulatory backlash which will slow the speed of formulation of these standards. At this point in time, major global economies agree with their experience that the implementation will take lot of time. In my opinion, there should be a regulator like OECD which was formed for global tax structures.”

 

Aarti Raote, Partner, Deloitte India

 

The Economic survey has highlighted the Government’s concern on regulation of the ‘Crypto-ecosystem’ and rightly so given the collapse of the crypto exchange and the weaknesses in the system that are exposed from time to time. In light of similar apprehensions raised by other countries as well, the OECD has framed the Crypto- Asset Reporting Framework (CARF) that will provide more visibility on intermediaries, e-wallet service providers and exchanges. It is expected that that the Government may strengthen the reporting and regulating norms of this volatile instruments inline with the suggestions provided by the OECD as well as the guardrails put in place by other countries.