Cryptocurrency surge may continue, but regulatory uncertainties create bottlenecks

The surge in cryptocurrencies, led by Bitcoin, is likely to continue with robust response from not only retail but also global institutional investors, believe players. However, regulatory uncertainties continue for the sector.

“The crypto ecosystem has also been growing largely due to institutional investors buying into crypto and large companies like PayPal offering it,” said Nischal Shetty, CEO of domestic cryptocurrency exchange WazirX, adding that 2021 is likely to be even better for the sector with more regulatory clarity coming in from countries like the United States.

Ashish Singhal, CEO and co-founder of cryptocurrency investment platform CoinSwitch Kuber, also noted that there has been consistent growth in the sector since March.

“Companies like PayPal are trying to adopt crypto, which is a positive sign for the global ecosystem of cryptocurrencies, which ultimately impacts the Indian sentiments and provide opportunity to Indian investors,” he said.

Prices fluctuate

Bitcoin had touched a record high of over $40,000 on January 8 this year, but its price has been fluctuating since then.

“After SC judgment and following Covid-19 trading, volumes in cryptocurrency have jumped by 85 per cent to 100 per cent. Average trading on Indian crypto exchange is roughly $20 million per day,” said a recent SBI Ecowrap report, adding that with overpriced equity and fragility in mutual funds, trends towards investment in cryptocurrency will only accelerate.

But despite strong response from retail investors to cryptocurrencies since the Supreme Court lifted the ban on trading in March last year, most banks remain cautious.

Bankers say cryptocurrencies are a grey area. “While the Supreme Court has lifted the ban, there is no regulatory clarity, and banks are not keen on encouraging customers on this front,” noted two bankers.

Significantly, the Reserve Bank of India in the ‘Booklet on Payment Systems’, which was released on January 25, said it is exploring the possibility as to whether there is a need for a digital version of fiat currency and, in case there is, how to go about operationalising it.

Noting that private digital currencies, virtual currencies and crypto currencies have gained popularity in recent years, it said: “In India, the regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks.”

Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP, also said regulators and authorities are undecided and apprehensive about cryptocurrencies and their associated risks in India, while noting that the RBI has acknowledged the rising popularity of cryptocurrencies and proposed to explore the possibilities for the need and operationalising the digital fiat currency.

“Regulators and authorities are undecided and apprehensive about cryptocurrencies and their associated risks in India. Now is the time for India to break its wait and watch, approach and consider granting greater regulatory clarity to cryptocurrencies,” he said.

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