The crypto assets conundrum

News: Arguments for legalising crypto assets in India are weak, and in fact dangerous.

What is the case for Crypto regulation?

– Cryptocurrency enables relatively invisible transactions, with serious implications for crime, terrorism, money laundering, tax evasion, etc.

– Another worry is that the crypto mania is getting built of purely speculative investments. The eventual bursting of such bubbles will badly hurt people.

– Further, crypto threatens the state’s macro-economic role.

– Also, Govt wants to avoid any tech-unfriendly image.

Why legalising Crypto assets is dangerous?

Firstly, Crypto is more divisible and portable than land, gold, stocks and even physical currency. Hence, once legalised, crypto asset’s advance towards becoming a medium of exchange would be unstoppable.

Secondly, Crypto is mostly a speculative asset: The 2008 financial crash happened largely because some ‘assets’ lost all connection to any kind of underlying value. When this happens to Crypto, the bubble will burst, gravely hurting people. If the Govt legalises a purely speculative asset, it provides a green signal to investors to invest in it and blow into the bubble. When the bubble bursts, there may be a heavy political price to pay for the ruling dispensation.

Thirdly, any underlying value of Crypto is only in terms of an expectation of it’s widespread acceptance as a medium of exchange in the future. By legalising Crypto assets, Govt will inadvertently be promoting this expectation.

Fourthly, legalising cryto assets primarily to support blockchain technology is also not tangible. It’s like signing on to the use of space as a new frontier of war just because it would promote India’s space industry. Blockchain has thousands of applications other than crypto. Various innovations and services, including using blockchains are indeed possible over the top of a Central Bank Digital Currency (CBDC), as an alternative to private cryptocurrencies.

Fifthly, the argument to let both public and private currencies co-exist, leaving it to ‘people’s choice’, is also deceptive. The powerful feel the distributive potential contained in public currency systems is unfair. Hence, they will all push private currencies. Their combined economic power itself would ensure an overwhelming dominance of private currencies over the public currency.

More articles on Crypto:

– The Crypto conundrum

– Cryptocurrencies in India: Ban or regulation – Explained, pointwise

– Why arguments against Cryptocurrency regulation are very weak

Source: This post is based on the article “The crypto assets conundrum” published in The Hindu on 3^rd Jan 2022.