'India should start leveraging rather than banning crypto.'
Is the Modi government's plan to regulate cryptocurrency a good move?
Will crypto be a serious threat to the macroeconomic and financial stability of the country, like the RBI thinks?
India has the highest number of crypto owners in the world, around 100 million. What attracts young Indians to cryptocurrency?
Professor Padmanabha Ramanujam has been studying crypto from 2017 when he saw his students trading in it.
"Crypto is not a bubble and it is going to be there in the future as well," Professor Ramanujam, currently the Dean of the IFIM Law School in Bangalore, tells Rediff.com's Shobha Warrier.
The prime minister said, 'It is important that all democratic nations work together on cryptocurrency, and ensure it does not end up in wrong hands, which can spoil our youths.' A businessman like Elon Musk said it is people's currency and he supports virtual coins. Where does the truth stand?
Unlike other currency, crypto does not have any regulation right now.
It is not regulated by any central authority.
Whenever there is no regulation, there will be speculation on how the trade is taking place, what the real price is, etc.
Now, let us look at the scenario in India. There are uncertainties surrounding crypto. But if you look at the investment in crypto currency, there is a strong momentum in India.
It was reported that in the last one year, crypto market grew at 641% in India which is really huge.
The reason why the investment in crypto has gone multi-fold was the Supreme Court order in March 2020 nullifying the circular of the RBI banning cryptocurrency.
Almost 6 million active users joined a single Indian crypto platform called Coin Switch Kuber since June 2020. People thought there was validation by the Supreme Court as the court lifted the ban imposed by the RBI. That made many people joining the crypto bandwagon.
Now, the government is talking about prohibiting all private cryptocurrencies and the RBI introducing a currency. Do you support such a move? Is that the way forward?
If you look around, you will see adverse effects in every country that has imposed a ban or regulated crypto.
As the entire transaction works peer to peer, regulating peer to peer technologically is impossible.
You can keep blocking, but they will always find ways to wriggle out of it. The only way to regulate crypto is through technology, and the users will find another technology to counter the technology that blocks. So, it is going to be extremely difficult to regulate crypto.
But the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 has listed around 26 items for legislation waiting for the Cabinet nod. What the authorities are trying to do is create more financial stability, and stop money laundering.
I feel the government will have to strike a balance because they cannot absolutely regulate crypto. At the same time, they may want to regulate it in such a way that they can look at the number of transactions that take place.
They may also want to see that money laundering or any illegal money is not routed through cryptocurrency. To that extent, they may want to regulate crypto.
But I don't support absolute regulation of cryptocurrency.
The government wants to stop private players in cryptocurrency. Is such a move possible?
I don't think so. It is not possible because you have to understand that the digital technology behind cryptocurrency is very sophisticated.
I think the regulators have very less knowledge, or may not even have the understanding of how the blockchain works or a crypto currency like Bitcoin works.
I feel transparency could be the issue when it comes to cryptocurrency, and if you could address the issue of transparency, you are more or less on the right track.
How will you address the issue of transparency?
I would say, self-declaration. That is the best practice according to me.
If you look at Europe, crypto is accepted even for buying vehicles. In fact, Tesla said that they own crypto. Google and Facebook also may be holding crypto.
Futuristically speaking, cryptocurrency is going to stay. So, I think self-declaration is the only way to have transparency.
The RBI said cryptocurrency would be a serious threat to the macro-economic and financial stability of the country. In what way is it going to be a threat?
Whenever you have an intermediary like the banks for example, you are able to trace the revenue generation and the government will have control over the investment people put in.
But in the case of crypto, the government has no control over the investment people make.
For example, I buy some shares of a company and if that company goes bankrupt, the government can probably help me get back the money. You may remember people lost a lot of money when the Global Trust Bank collapsed. But the government could intervene and people got their deposits back.
But in the case of crypto, if people were to invest and then lose money, and if big financial institutions were to invest and then lose the money, the government will not have any control. And this can impact the economy and the government in terms of balancing their current account deficits.
The chances of such a thing happening are very less. But if it goes to very huge levels and if something goes really wrong in cryptocurrency, it can result in financial instability and thus impacting the economy, like the financial crisis of 2008.
That's why I said, what is required now is transparency. The government does not have confidence in crypto because it is not transparent.
Will the plan of prohibiting private players in the crypto field, and only the RBI coming out with a currency, work?
No. The Centre is seriously considering the Cryptocurrency Bill with a progressive approach. The crypto community is contesting the Bill stating that the absence of a definition of private crypto in the Bill gives arbitrary powers to the state.
Let's be honest. India needs a cryptocurrency exchange like Japan which is regulated by a financial services authority.
A blanket ban on private crypto as proposed by the legislation is a bad idea.
You create a financial services authority with people who have some knowledge about crypto to regulate it. You should involve private players also.
Now the argument of the authorities is that crypto is beyond the control of the State and central bank control. So, you feel with a financial services authority to monitor, there will be some control?
Yes. Once you establish a crypto exchange, it can mind its own crypto currencies, it can have initial coin offerings, and this will lead to a new asset class in India.
When you have a crypto exchange, it will help people to invest in India.
The prime minister was of the opinion that crypto would spoil the youth of India, and you have around 100 million crypto owners in India...
See, the prime minister is advised by some committees as his responsibility is to look at the welfare of the people of India.
At the same time, I would say we should not let go of this opportunity. Using the prime minister's Made in India initiative, we should create our own crypto exchange and crypto currency. This way, you can leverage the market.
You mean like Bitcoin which is so popular globally...
Exactly. If you want, you allow Indians to mine our own crypto currency rather than going to a foreign crypto.
When you have the highest number of crypto owners in the world...
Yes, that's why I am saying, let's leverage the market.
Why do you think young people are the major investors in crypto? Is it because they are more technology savvy?
You have to first understand that people are making huge money in crypto. You have to also understand that the new generation does not want to let go of any opportunity to make money.
Wherever there is higher risk, there is higher profit. And youngsters tend to leverage that risk.
Mind you, Generation Z are risk takers! They are young and they have a different mind-set. They don't mind playing and losing money.
What kind of future do you see for crypto in India and globally?
I think crypto is going to stay. It will continue to be there whether India bans it or not.
If you find a buyer for your crypto in another country, you still sell and leverage.
India should start leveraging rather than banning crypto. India should start thinking about having its own crypto exchange and crypto currency. Let people trade that currency.
Some people say if India let go of this opportunity, it will miss the technology bus once again. Do you think so?
That's why I say that we should not over-regulate this. If you over-regulate this, you are making people invest elsewhere which will only create greater risk for that investment.
You are saying, crypto will be there and it is not a bubble that will burst soon?
Crypto has come to the limelight now because the valuation of Bitcoins has increased.
But I am aware of this from 2017. I have seen my BBA students in Gujarat doing bitcoin trading even then.
Crypto is not a bubble and it is going to be there in the future as well.
*Kindly note the image has been posted only for representational purposes.
Feature Presentation: Ashish Narsale/Rediff.com