Regulation
The Future of Cryptocurrencies: US Surge, India’s Struggle
With landmark moves like SEC-approved Bitcoin ETFs, the US is leading the cryptocurrency ranks, while India is grappling with high taxes and regulatory uncertainty.
With former US President Donald Trump promising a cryptocurrency revolution if reelected to power, the focus has once again shifted to digital currencies and their future prospects. Trump stated that if he returned to power, the United States would become a Bitcoin superpower, with the Republican Party planning transparent regulatory guidance that will benefit the entire industry. His other crypto-friendly policy commitments include the creation of a strategic national reserve of Bitcoin.
While Trump’s announcement will likely lead to a surge in Bitcoin, many believe that Bitcoin and other cryptocurrencies are bubbles that are waiting to burst. Prior to Trump’s promises, the U.S. government had already taken steps to strengthen the sector, with the Securities and Exchange Commission (SEC) approving Bitcoin exchange-traded funds (ETFs). This approval was a landmark event, even if skepticism about cryptocurrencies remains. With the SEC approving 11 Bitcoin ETFs, many new investors who were previously reluctant to navigate the intricacies of buying Bitcoin may gain confidence in the digital currency.
READ | Equity Up, Debt Down: The Impact of Balance Sheet on Your Portfolio
Market analysts have welcomed the SEC’s move, saying it serves as an important validator for this burgeoning industry. However, while the U.S. is making strides toward cryptocurrencies, they are still not as widely accepted as traditional financial investments. Demand and acceptance will likely increase as regulatory clarity from other countries comes.
Rise of cryptocurrency
Cryptocurrencies emerged after the 2008 global financial crisis, which intensified following the collapse of US investment bank Lehman Brothers. This crisis gave birth to a new class of digital assets, with Bitcoin, the first cryptocurrency, emerging just two months after the collapse of Lehman Brothers. The appeal of these new currencies lies in their decentralization, which allows for peer-to-peer electronic transactions without the need for trust in traditional central banks. This decentralization is also why some investors remain skeptical. However, since 2009, the adoption of digital assets has skyrocketed.
The Indian Enigma
India has had a complex relationship with cryptocurrencies. While the bull run in overseas markets has attracted Indian investors to digital assets, the imposition of high taxes by the government has been a deterrent. 2021 was the best year for cryptocurrencies in India, but a continued bear market in 2023 was due to market downturns and the introduction of a 30% tax rate along with a 1% TDS (tax deducted at source) in 2022.
TDS on securities transactions has led to a dramatic fall in trading volumes on Indian exchanges, with a decline of over 95%. This sharp decline is due to Indian investors shifting their trading activities to offshore platforms to avoid higher taxes. According to a report by Esya Centre, an estimated three to five million Indian traders have migrated to foreign exchanges, resulting in a significant loss of $3.8 billion in trading volumes for domestic exchanges. Despite a recent resurgence in trading activity, with volumes quadrupling, Indian exchanges face the challenge of capitalising on the renewed retail interest to regain lost ground and justify their previously lofty valuations.
India’s reluctance to integrate cryptocurrencies was evident when it blocked access to foreign cryptocurrency exchanges such as Binance, Kucoin, and OKX in January. The move had a significant impact on the cryptocurrency landscape, but was welcomed by domestic players as it forced Indian crypto traders to switch to domestic platforms. The move was prompted by money laundering concerns raised by the Financial Intelligence Unit (FIU).
The Opportunity Called Cryptocurrency
India desperately needs cryptocurrency regulation to support a surge in trading volumes. The crypto industry in India was hoping that the recently announced budget would bring some much-needed amendments. Ultimately, the US has made great strides in the cryptocurrency space, while India’s progress has been hampered by its harsh tax regime, the industry laments.
India is at a critical stage when it comes to cryptocurrencies. Despite having a thriving startup ecosystem with nearly 900 cryptocurrency-focused ventures, regulatory uncertainty has cast a long shadow over its potential. This ambiguity has led to a significant brain drain as talented individuals and companies seek more conducive environments abroad.
Despite the challenges, cryptocurrency’s appeal remains strong. The rapid growth of Bitcoin ETFs, which has even outpaced gold ETFs, underscores the growing global interest in digital assets. Experts believe 2024 could be a watershed year for India’s crypto industry, with high expectations based on the belief that the impending G20 deadline for cryptocurrency regulation will spur action. To unlock cryptocurrency’s potential, issues such as unstable banking relationships and complex tax structures need to be resolved. While skepticism still clouds the investor landscape, the potential rewards are undeniable.