India Reverses Stance on Crypto and Plans New Regulatory Regime

  • Uturn for India’s stand on crypto
  • Lobbying by crypto industry forges new rules
  • New crypto rules could come as early as July

Subhash Chandra Garg, Secretary of India’s Department of Economic Affairs (DEA) at the Ministry of Finance, has told reporters this week that draft regulations have been put together for a framework for the use of digital currencies.

Indian authorities have been undecided about the future of cryptocurrencies, and these long-awaited regulations follow the country’s Supreme Court decision to review a petition against the Reserve Bank of India’s (RBI) ban on crypto earlier this year.

In his budget speech in February, Finance Minister Arun Jaitley announced that cryptocurrencies are not legal tender in India and promised that the government would crack down on their use. Since then, the Income Tax Department has issued notices to thousands of crypto investors accusing them of tax evasion. For its part, the RBI ordered all regulated financial institutions to stop all services to businesses and individuals dealing in cryptocurrencies.

Many companies stepped up to challenge the ruling calling it arbitrary, unfair and unconstitutional. Protests by the country’s crypto community have put pressure on the government to reverse their ruling as many believe that the central bank did not provide any reasons for the imposed restrictions.

While in previous comments, Garg said the Indian government “does not read this [cryptocurrency] as currency” and would not allow its use in the country’s payment system, it now recognizes that some people may still find value in cryptocurrencies and will introduce regulations so that crypto transactions are legal and transparent.

Garg also indicated that the new rules would introduce regulation for exchanges in India and implement legal requirements for know your customer (KYC) procedures and record keeping for transactions.

The Supreme Court is scheduled to hear petitions against restrictions imposed on cryptocurrencies by Reserve Bank of India, on July 3 and the new regulatory framework for cryptocurrencies is likely to be presented in the first half of July.

ErisX Tells Regulator's Why Ethereum Futures Would Create Better Markets

  • Nasdaq and Fidelity Investments-backed ErisX exchange sends explanation letter to CFTC.
  • Letter explains that regulated Ether-based futures contract would create more efficient crypto markets.

ErisX, a US-based digital asset exchange, has filed a comment letter with the US Commodity Futures Trading Commission (CFTC) - after the federal regulator requested more information regarding Ethereum (ETH)’s current market.

Submitted on Friday, February 15, ErisX’s letter asserted:

The introduction of a regulated futures contract on Ether would have a positive impact on the growth and maturation of the market.

As covered, ErisX is a newly launched cryptoasset exchange that received $27.5 million in starting capital from multi-trillion dollar investment manager, Fidelity and Nasdaq Ventures, which is Intercontinental Exchange’s (ICE) VC investment division.

Consistent With CFTC's Efforts

In December 2018, ErisX’s management revealed its plans to offer bitcoin (BTC), litecoin (LTC), and ether (ETH) spot trading and it also noted that it was seeking regulatory approval - in order to list cryptocurrency futures at a later point this year. Explaining why such futures contracts would help investors, ErisX’s letter noted that “listing and trading Ether futures compliantly on CFTC regulated markets is consistent” with the financial regulator’s efforts to create “open, transparent, competitive, and financially sound derivative trading markets.”

The letter from ErisX further mentioned that regulated crypto-based futures would “prohibit fraud, manipulation, and abusive practices in connection with derivatives and other products subject to the (Commodity Exchange Act) CEA.” According to the CFTC, bitcoin can be considered a commodity as it has been designed to potentially replace existing fiat currencies (as a medium-of-exchange). Because of bitcoin and ethereum’s decentralized nature, they are arguably not securities, the CFTC has clarified on several occasions.

Explaining the differences between the Ethereum and Bitcoin protocol, ErisX’s letter has stated: 

Ethereum built upon some of the architectural principles of Bitcoin to extend [its] functionality of [a] distributed, (cryptographically) secured, (blockchain-enabled) record-keeping system to include new computational capabilities for the execution of arbitrary code.

"Unregulated Exchanges And Brokers" Trying To "Fill The Gap"

Per ErisX’s analysis of current trends in the global Ethereum (and larger digital asset) market, there is still not a proper regulatory framework in place. This, according to ErisX, has discouraged several large enterprises from entering the fragile crypto ecosystem. At present, ErisX believes there’s a trend emerging in which “unregulated or lightly regulated ‘exchanges’ [and] ‘brokers’ [are trying] to fill the gap, many of them off-shore.” However, ErisX cautioned there may be certain risks associated with this type of market such as increased volatility and liquidity fluctuations.

As noted in ErisX’s letter:

Not unique to Ether, but [current crypto markets could suffer due to] the current fragmented global market structure of trading platforms and ‘exchanges’ with significantly varying degrees of regulatory oversight and operational transparency and integrity.

By introducing standardized, CFTC-regulated Ether-based financial products, ErisX argues the crypto space might receive a more positive response from institutional investors - which could potentially lead to “more robust, liquid, and resilient markets.”