By K Raveendran
Cryptocurrency, by its very nature, has been a millennial obsession and it is perhaps in the fitness of things that El Salvador under its millennial president Nayib Bukele has become the first ever country to declare bitcoin, the leading cryptocurrency, a legal currency. Bukele’s administration believes that the historical move will bring financial inclusion to all Salvadorians and in its turn boost investment, tourism, innovation and bring economic prosperity to the country.
El Salavador’s move brings the mercurial world of cryptocurrencies a step closer to being regularised by all major economies as a series of recent developments have indicated a softening of the rigidity of central banks. The resistance from central banks is understandable as the decentralised digital currency is conceptually the antithesis of central banks, which want everything centralised as opposed to cryptos which have no central controller.
The change of attitude has had several manifestations, including the removal of ban by tech giants Google and Facebook in using their platforms for advertising cyptocurrencies. In fact, Facebook’s own crypto project Diem, which at one stage envisaged the Libra coin, is getting ready for roll-out this year. Facebook’s is a dollar-linked, more ‘conventional’ type of cryptocurrency.
The change of approach has also been visible in India, a major market for bitcoin. Even when it was deemed illegal, bitcoin trading has been flourishing in India, not just among the millennials, but even the most traditional business people had developed for a liking for it, probably due to the high stakes. Just one year ago, the price of one bitcoin was around 9,000 dollars, but today it is about 37,000 dollars.
The RBI had debarred banks from dealing with bitcoin traders, saying the currency had no intrinsic value as it was not backed by any assets, unlike other regular currencies. But despite the RBI ban, the bitcoin trade carried on, with some burning their fingers badly, while some others made a fortune out of it.
Crypto trading in India received a big boost when the Supreme Court struck down the RBI curbs on cryptocurrencies in March last year, saying the restrictions were illegal. The RBI’s tough stand had forced many crypto trading companies to go out of business, but the Supreme Court order gave them a fresh lease of life. The court struck down the curbs on the ground that there was no specific law in the statutes that made the virtual currency illegitimate.
Over time, the hostility towards bitcoin by the government also got diluted and the finance ministry even initiated talks with the local crypto trade in connection with the formulation of regulations to govern the crypto business. According to latest indications, the government is moving closer to declaring bitcoin as an asset class that may be brought under SEBI supervision.
Although the country is still a long way off accepting bitcoin as legal tender, the chances of trading in the virtual coin being regularised are becoming brighter by the day. The government is even considering to bring the cryptocurrencies business under the tax regime, which will provide another source of revenue for the exchequer. According to estimates, India has some 15 million active cryptocurrency investors, who hold more than $1 billion in investments collectively.
Cryptocurrency firms have been proliferating in India. The likes of Zebpay, Unocoin, Coinsecure, Laxmi Coin, SearchTrade and BTCX India have all achieved significant traction since their early start-up days. So much so that a committee of the representatives of finance and IT ministries, NITI Aayog, and Reserve Bank officials was set up to examine the possibility of legalising virtual currencies in India.
Simultaneously, global digital currency exchanges are exploring ways to set up shop in India. The names being cited in this connection include U.S.-based Kraken, British Virgin Islands-based Bitfinex and rival KuCoin. The three exchanges are ranked in the world’s top ten based on their traffic, liquidity and trustworthiness of their reported trading volumes. (IPA Service)