Living with Crypto – Investor Protection

The last finance committee of the Parliament made it very apparent through sources that India is not in the mindset to outrightly ban cryptocurrency; it would be preferred to regulate it than allow it to remain an unknowable evil. The topic of cryptocurrency has been discussed nationwide, and Prime Minister Modi’s remarks even touched on cryptocurrency trading. More recently, the Supreme Court effectively overturned the cryptocurrency ban announcement. However, there are serious security problems with the RBI, which they have been highlighting. For about a year, there have been rumors and plans for the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. Therefore, when you consider how popular cryptocurrencies are today across India, especially how young populations from Tier 2 and Tier 3 cities are investing in cryptocurrencies, it is essential to engage in discussions about protecting people investing in crypto.

Investors in Crypto Today

Cryptocurrency has become a rural phenomenon rather than metro or metropolitan phenomenon. People from rural areas are investing very little money, but if they lose, they will have severe consequences.  Where there are fewer restrictions and opportunities for a quick profit, cash flows, owing to the popularity of crypto, which is a worrying development. A former bureaucrat served as the chair of an inter-ministerial body that includes SEBI, the Reserve Bank of India, and other organizations. The committee report was turned in, and the budget session was where they were scheduled to be picked up. And these committees have unequivocally and again advocated against crypto. India permitted the cryptocurrency business to expand, but the citizens have very little financial literacy. There is less awareness about blockchain and cryptocurrency, two distinct concepts. The second aspect is that many confuse cryptocurrency with the Central Bank Digital Currency. Unknowingly, people in rural India are contributing money. In urban India, wealthy HNIs, corporate houses, and their family offices are also donating money, and the lack of awareness is widespread and expanding.

Technology, Regulation, and Investment

The cryptocurrency stakeholders must decide whether to assume the leadership role, establish their mechanism or follow the global agency. It’s a chance for India to become a superpower in the digital sphere to lead, control, and create. The most crucial factor is whether there will be an empowered body with the right side of the people and all the stakeholders who will raise issues with all relevant parties, develop the proper rules, and likely introduce modular legislation if regulation is required.

Investor’s Protection

Given the size of the market, investors’ interests must be protected. There is little protection for the investors, especially the smaller ones, even in the licensed businesses where this occurs. The oscillations persist despite laws and other restrictions being in place.  Consequently, market forces should determine who wants to invest and who doesn’t want to in cryptocurrency. Second, any income subject to taxation is recognised as a capital gain and valued as an asset. So, the claim that crypto should be banned while the government accepts taxes on such gains is quite ambiguous.  Therefore, protection is essential, and a suitable entity—whether it be SEBI or any other financial institution—that will genuinely regulate it is required to safeguard the interests of the investors.

Questioning the Existence of Crypto 

There has been discussion on why crypto exists, where some individuals lose money from it, and who is the one getting benefits from it. Since it represents society, the government has a responsibility to issue money. Using currency other than that given by the bank is not the wisest course of action because trading is not tracked in India. Since identification is impossible, we don’t know where the investors’ money is going or how the hackers steal it using cryptocurrency. Young people invest their hard-earned money on the dark web rather than through safer channels. Cryptocurrency is a high-risk investment, and its underlying technology is misrepresented. The stakeholders are not rejecting the Blockchain’s underlying technology. However, citizens often confuse it, and people are misusing it as investor protection is absent. They are determining if crypto is a commodity, an asset, or what kind of asset it is necessary. There are many different ways to regulate cryptocurrencies. Therefore, it requires careful consideration. 

Legalization of Crypto 

As of now, it is not entirely clear what Crypto denotes and its goals. Any currency performs various functions; it can serve as a means of exchange or store value for money.  There are several conversations about cryptocurrencies that have gained popularity recently due to the success of several of these exchanges. From a different angle, however, nobody argues that technology must be hindered in today’s society. No organization, bank, or central bank would be so naïve as to make such an absurd claim. New technologies will appear. However, they cannot serve as grounds for starting something. If it is a payment method, we must determine whether security measures have been adopted, as the central bank correctly notes. When the Reserve Bank of India announced a regulation in 2018 to suspend all cryptocurrency exchanges, this was contested in the supreme court. Because of the supreme court’s permission, it is still in effect. Therefore, the lack of legislation in India is the main reason for this. Legislation is necessary, and it must be passed quickly because technology is advancing and more things will become regulated. Anything worthwhile must be comprehended and promoted simply to control and fall under the ambit. 

Investigating Frauds in Investments 

Everyone agrees that cryptocurrency is just another form of gambling. Two types of gambling are currently legal in India: state-run lotteries and, in some locations, regulated horse racing. Therefore, if we continue allowing cryptocurrency in any form, we would be legalizing—or at least accepting—a third kind of capital.  In the crypto community, it is unclear why this should be valuable.  In horse racing, many people win and make a lot of money, while many others lose cash and profit. So, cryptocurrency is similar to that. Because there is an investor protection panel, the only way to protect investors now is to educate people about the risks associated with investing continually. Today, SEBI is stepping up and claiming that mutual funds are vulnerable to risk. They are allowing advertisements for cryptocurrency to appear leads to induce individuals to invest without providing any means of warning about the dangers. Hence, the regulation should be implemented promptly.

Recommendations

• Need for a mechanism to alert the public about the serious risks and dangers involved in investing in crypto.
• Need for an adequate framework for doing business with crypto and creating an ecosystem following appropriate guidelines. 
• Addressing and understanding some more fundamental and profound issues that are not getting discussed in the case of crypto.
• There must be a system to ensure that the customer’s money is safe, that the assets in their possession are safe, and that they are genuinely available when the product is purchased.