- ‘One country alone cannot do everything’ if regulation is required, says India’s financial minister as she leads the push for uniform rules in the group
- New Delhi’s call is likely to resonate with Southeast Asia, a popular destination for crypto investors, after a string of high-profile collapses last year, observers say
Indian businessman Saurabh Tiwari’s interest in cryptocurrency grew after he made a significant profit on a bunch of different tokens within a few months of buying them in 2020. But the boom soon turned to bust following a series of events such as Russia’s invasion of Ukraine and the collapse of crypto exchange FTX last year.
“I am now down 60-70 per cent (on these investments). It does not make sense for me to get out,” says 29-year-old Pune-based Tiwari, who also lamented that India lacked a crypto market regulator to protect investors like him.
India, president of the Group of 20 (G20) this year, is leading the push for crypto regulation and is proposing uniform regulations across the group’s members. The move is likely to strike a chord especially after a string of crypto exchange failures, bankruptcies and fraud allegations last year spooked global investors.
“If it requires regulation, then one country alone cannot do anything,” India’s Finance Minister Nirmala Sitharaman told reporters in New Delhi this week.
“We are talking with all nations, if we can make some standard operating procedure which is followed by everyone making a regulatory framework, and if it can be effective,” she said ahead of a G20 meeting of finance ministers and central bank governors in the country later this month.
The proposal to jointly regulate crypto markets is likely to be watched closely in Southeast Asia, a popular destination for crypto investors and entrepreneurs.
Singapore and Hong Kong have well-regulated crypto markets, but most of the governments in the region are just beginning to understand the power of cryptocurrencies that could open up new financing opportunities.
Asian investors have also been shaken by crypto’s boom and bust cycles, following last year’s Terra-Luna’s US$40 billion implosion, the collapse of Three Arrows Capital and the bankruptcy of FTX that wiped out around 25 per cent of the crypto market capitalisation.
Southeast Asia, with nearly 700 million residents, has one of the world’s fastest-growing populations, with some 480 million of them being active internet users. The region is expected to have the world’s fourth-largest economy by 2030 and has emerged as a fertile ground for hundreds of crypto and blockchain start-ups.
There are more than 600 crypto or blockchain companies currently headquartered out of Southeast Asia, according to a report by global investment platform White Star Capital.
Consumers in countries like Vietnam and India have been among the fastest worldwide to adapt to cryptocurrencies, but authorities in many places have not yet found a path to govern the ecosystem effectively.
Rajagopal Menon, vice-president of India’s biggest cryptocurrency exchange WazirX, said the Indian government had probably realised that the only way to “mitigate the bad effects of crypto” was to have a global consensus on a regulatory framework that exists for traditional banking.
A tough terrain
Crypto assets have been around for more than a decade, but it is only now that efforts to regulate them have gathered pace as they have evolved from niche products to mainstream speculative and payment instruments.
Evolving regulation around them is tricky because countries will have to train regulators in new technology skills and keep tabs on thousands of market participants who may not be subject to typical disclosure or reporting requirements.
Crypto assets refer to a wide range of digital products that are privately issued and can be stored or traded using primarily digital wallets and exchanges.
The assets are merely codes that are stored and accessed electronically and may or may not be backed by physical or financial collaterals or pegged to the value of fiat currencies.
In markets with crypto regulations, certain entities are typically authorised to carry out specific activities. Many functions in mainstream financial activities such as lending and deposits are now replicated in the crypto world, leading to more calls to harmonise the system.
Some countries such as Japan and Singapore have amended or introduced new legislation to cover crypto assets and their service providers, while others such as India are at a drafting stage.
The lack of uniform regulations across different nations leave space for traders and companies to flock to jurisdictions with more lenient or no regulations, and exploit arbitrage opportunities that creates cross border risks to the financial system, analysts say.
“Unregulated guys can do anything they want. Having uniform regulations will help regulated entities like ours to compete well with the unregulated players,” said Bo Bai, executive chairman and co-founder of Singapore-based MetaComp, an accredited payment services provider including for digital tokens. “I think it will be very helpful to establish a harmonious set of rules for all the crypto service providers.”
He said consumers from unregulated markets had flocked to the company in recent months despite having to undergo an extensive screening process, as they were realising the value of safety in the wake of the recent global contagion.
Industry executives say last year’s collapse of FTX revealed systemic flaws that need to be plugged and that harmonising regulations would help.
“Some of those failures were issues of poor design and poor governance with no oversight. It’s not a failure of the underlying technology. FTX is a brilliant case of those governance failures,” said Esme Hodson, chief compliance officer of SC Ventures, a business unit of Standard Chartered Bank which invests in disruptive financial technology.
“The financial system requires innovation but that should not come at the cost of stability and exploiting any kind of customer vulnerability,” Hodson added.
New Delhi could take a leaf from regulated markets like Singapore and Dubai and strive to find a middle ground among nations especially in the region to restore confidence among crypto investors, analysts say.
“India has the technical know-how in IT and has been trying to introduce a regulation on cryptos,” said Raj Kapoor, founder of India Blockchain Alliance. “Investments in crypto are quite strong in Asia, including in South Korea, Japan, Vietnam and even Pakistan.”
Other industry executives say uniform regulations would help aspects such as reducing arbitrage, but could end up delaying implementation of laws locally because of the time it will take to reach a common point.
“Ultimately, the ideal approach to regulating cryptocurrencies is likely to be a balance between these two perspectives, where countries adopt a common set of principles while still retaining the flexibility to tailor regulations to their specific circumstances,” said Anndy Lian, a partner at Singapore-based Passion Venture Capital and author of the book NFT: From Zero to Hero.
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.