India should embrace digital currencies with right safeguards

India is hotly debating to bring in regulations for cryptocurrencies. According to sources in the know, the country is planning progressive and forward-looking measures on issues related to cryptocurrencies. If that happens, this will be a move with significant departure from earlier stand of restricting the use of digital currencies. Currently, India doesn't have any regulations with regard to cryptocurrencies. However, Internet and Mobile Association of India (IAMAI) has set up a formal board, Blockchain and Crypto Assets Council (BACC) as a self-regulatory body with a set of code of conduct for crypto exchanges operating in the country. How far, these self- regulations work is a matter of debate. Therefore, the move of the government to regulate the sector is a welcome move. Banning will no longer help when a huge number of investors everyday is investing into these virtual currencies.

Reports suggest that the number of crypto investors has crossed 10 crore, while the crypto platforms are claiming that there are 2 crore crypto owners in the country. Though these numbers are disputed by the Reserve Bank of India saying those as 'exaggeration', there is no denial of the fact that India is witnessing rising interest in these digital currencies. Especially, millennials are flocking into these platforms. With enabling norms, this class of investors will further increase their exposure to digital currency market.

This augurs well for the country as some of these youngsters will also look at other markets like equity to invest their money. In turn, equity market will be more vibrant and companies will get much-needed growth capital for future growth. Cryptocurrencies are based on the fundamental technology base of blockchain. Blockchain has many use cases across the financial services sector. So regulations on cryptocurrencies will definitely give impetus to usage of blockchains in the financial institutions.

However, cryptocurrency ecosystem also needs to be careful about the perception created among investors about this asset class. Many cryptocurrency platforms are luring investors with the assurance of very high return. As no asset class moves in unidirection, getting high return from any investment instrument all the time is a critical flaw in popularising the instrument. Moreover, the world is now familiar with growing scams within this industry. The latest Squid game crypto scam is a case in point, which came as a shock to most stakeholders. The Squid Game token experienced an exponential rise soon after its launch.

However, a market crash last week saw investors lose millions of dollars. Such incidents will affect the investors' trust on the entire ecosystem. The RBI has growing concern about these asset class as instances of money laundering through investment in these instruments has also come to fore. Therefore, strict regulation is the need of the hour. The global regulatory landscape is evolving with regard to digital currencies.

While China has banned all kinds of such transactions, US has accepted it with regulations. It will not be wise to throw the baby with the bath water. Digital currencies are the realities of the modern world and are here to stay. Therefore, India should have proper regulations with enabling environment to grow this ecosystem. And policy makers seem to be on the right directions in this regard so far.