2024 Cryptocurrency Legitimacy: A Distant Certainty
In the year 2023, cryptocurrency prices experienced a rebound, marked notably by a 165% surge in Bitcoin, successfully recovering from the losses incurred in the preceding year. However, despite this positive trend, digital currencies continue to lack explicit legitimacy in terms of regulations, yet they persist in a non-illegal status.
Yet, with the government implementing a comprehensive tax framework for virtual digital currencies (VDAs) in 2022, which included a 1% TDS on crypto transactions, some perceived it as tacit approval. However, the aftermath saw a substantial decline in crypto exchange trading volumes in India, reaching up to 90% in some cases.
Commenting on this, Venkatesh R, Senior Vice-President and Head of Public Policy at CoinSwitch, stated, “The unintended consequence of the VDA tax structure was driving the majority of the trade outside India, defeating the very purpose for which the tax was introduced.”
To navigate what was perceived as an oppressive provision, several Indian crypto exchanges chose to relocate their operations offshore. Recently, in response to this move, the Financial Intelligence Unit (FIU) took action by issuing show cause notices to nine offshore cryptocurrency operators, which notably included Binance, citing non-compliance with Indian laws. Alongside the issuance of notices, the FIU has further escalated the matter by formally requesting the Ministry of Electronics and Information Technology to block the URLs of these entities due to their deemed illegal operations.
2023: Attainment of Regulatory Milestones
In the dynamic realm of crypto assets, several regulatory milestones have prominently shaped this year’s progress. Notably, the G20, influenced by proposals from the IMF and Financial Stability Board (FSB), embraced a comprehensive roadmap for crypto asset regulation. Another pivotal achievement unfolded with the registration of 28 crypto service providers with the Financial Intelligence Unit, India’s anti-money laundering body under the Department of Revenue.
Highlighting the significance of these developments, Venkatesh R pointed out, “A crucial milestone is the bestowed reporting entity status upon VDA Service Providers (VDASPs) under India’s PMLA, designating the FIU-IND as the regulatory authority for this purpose.”
“Twenty-eight virtual digital asset service providers in India have now officially registered with the Financial Intelligence Unit-India (FIU-IND), thereby subjecting them to the Prevention of Money Laundering Act (PMLA). Consequently, users on these platforms are now mandated to authenticate their identities through KYC,” explained Rajagopal Menon, Vice President at WazirX.
Adding to this perspective, Gaurav Mehta, CEO of Catax – Simple Crypto Tax, highlighted, “A significant regulatory milestone was achieved when the G20 reached a consensus on acknowledging the borderless nature of cryptocurrencies. This consensus not only emphasizes the necessity for coordinated efforts in regulating cryptocurrencies but also stresses the importance of enhancing consumer protection, coordinating taxation, and improving international tax transparency.”
What does the future hold?
Industry leaders strongly emphasize the substantial potential of cryptocurrencies and advocate for the urgent development of a comprehensive regulatory framework. Additionally, they call for a notable reduction in the TDS rate from 1 percent moving forward.
“The demand for crypto assets among Indians has surged dramatically in the last two to three years, being perceived as an exciting alternative to traditional investments like stocks and bonds. Advocacy for reducing the one percent TDS is widespread within the crypto community. Consequently, with a high TDS rate, trading volumes are progressively shifting to foreign exchanges as investors express their preferences,” remarked Rajagopal Menon, Vice President at WazirX.
Adding a strategic perspective, Gaurav Mehta stated, “To instill trust among investors, authorities need to offer clear and forward-looking guidance on cryptocurrency treatment, supported by robust regulations. Despite initial caution from governments, the crypto ecosystem’s resilience and sustained growth urgently call for a more constructive and proactive approach.”
Further emphasizing the need for regulatory fortification, Venkatesh R of CoinSwitch highlighted, “A strong regulatory framework is of paramount importance. Japan serves as an exemplary model, where such measures have effectively protected consumers from crypto scams and fraudulent activities in the market.”