On Cryptocurrency regulation – Arguments against regulating Cryptocurrencies are very weak

News: Despite all the arguments being put forward for non-regulation of Cryptocurrency, government should push forward and regulate it.

Why Cryptocurrencies need to be regulated?

– Self-regulation is not the solution: Once one exchange puts out a misleading advertisement, making false claims of higher returns,  rival exchanges are left with no choice but to match such claims. Hence, we need proper regulation.

– Any Investment sector requires regulation: Instead of competing with fiat money, as intended by its founders, Crypto has  emerged as an avenue for investment and any form of investment needs to be regulated.

– Possibility of a regulation being bypassed is no reason to not regulate any sector: Another argument being made is that crypto investors don’t need Crypto platforms as they can move to peer-to-peer exchanges (P2P) exchanges located outside India.

– A regulated market will certainly keep illegal activities supported via Crypto transactions to under control to some extent.

– Most of the common investors will comply with the rules and substantial money will be gained from taxes.

How Crypto can be regulated in India?

In The Future of Money, Eswar S. Prasad talks about three different approaches that countries have taken to regulate cryptos:

– Banning: Countries like China have banned cryptos entirely.

– Passive intolerance: Then there are countries which have adopted passive intolerance. This involves not banning cryptocurrencies but discouraging their use by financial institutions and, in many cases, not clarifying the legal status of such currencies. South Korea has taken this approach.

– Regulatory framework: The third and the most practical approach would involve not limiting investors from investing in cryptos and at the same time creating a framework in which to regulate them and any related to financial products.

What is the way forward?

First, Crypto exchanges can be mandated to deduct a certain amount of tax when anyone sells tokens to make a capital gain. This will help maintain an accounting trail to check whether the right amount of tax was paid.

Second, the government needs to clearly specify the tax that needs to be paid on capital gains made by investing in cryptos.

Third, the use of the word ‘currency’ while talking about cryptos is something that needs to be outlawed because it misleads people, given that the word and the government are intricately related.

Fourth, it should be conveyed clearly to everyone that cryptos are not legal tender.

For more, read the following articles:

Source: This post is based on the following articles

“Arguments against regulating Cryptocurrencies are very weak” published in Livemint and “Controlling the Crypto genie” published in The Hindu, on 1st Dec 2021