Why cryptocurrencies must be regulated

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, to be introduced in the Lok Sabha soon, aims to prohibit all private cryptocurrencies in India while seeking to create a facilitative framework for adopting a central bank digital currency (CBDC).

The Bill is likely to classify mining, generating, holding, selling, or dealing in private digital currencies as a cognisable offence. Reports suggest that the government may introduce stringent regulations in line with the 2021 Financial Action Task Force (FATF) guidance for cryptocurrencies held as assets by imposing investment ceilings, stringent disclosure norms, and levying taxes on gains earned from such assets.

Understanding the exuberance

Globally, the cryptocurrency market is growing rapidly with the impetus from several trading platforms, mostly app-based. They are enticing investors with the lure of abnormally high returns at a time when both the conventional investment avenues, debt (including bank deposits) and stocks have been providing low yields. In November 2021, the global cryptocurrency market, constituting more than 6,000 cryptocurrencies, touched a market capitalisation of $3 trillion.

There has been a sudden flurry of cryptocurrency trading platforms in India over the past year. Latest industry estimates suggest that cryptocurrencies holdings of nearly 20 million investors amount to approximately ₹400 billion in India, suggesting that the country is emerging as the new frontier for…

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