Cryptos to be legit in 2024? Destination seems too far while the caravan moves on

The year 2023 was perhaps a good year for crypto prices as they recouped the previous year’s losses considerably with bitcoin spiking by 165 percent. When it comes to a set of regulations, digital currencies still fall short of explicit legitimacy, albeit they are not illegal either.

However, when the government introduced a detailed tax regime for virtual digital currencies (VDAs) in 2022 including 1 percent TDS on crypto transactions, some saw it as an implicit approval. The trading volumes in crypto exchanges of India witnessed a massive decline in the aftermath, and in some cases up to 90 percent.     

“The VDA tax structure had an unintended consequence of driving the majority of the trade outside India, thereby defeating the very purpose of which the tax was introduced,” says Venkatesh R, Senior Vice-President and Public Policy Head, CoinSwitch.

In order to circumvent what was seen as a draconian provision, some Indian crypto exchanges moved their business offshore. 

And more recently, Financial Intelligence Unit (FIU) has issued show cause notices to nine offshore cryptocurrency operators including Binance for not complying with the Indian laws.

Aside from issuing the show cause notices, the FIU has also written to the ministry of electronics and information technology to block the URLs of these nine entities since they have been operating illegally.

2023: Regulatory milestones achieved

With regards to crypto assets, a few regulatory milestones were achieved this year. One of the keys is the adoption of a roadmap for crypto assets regulation by G20 as proposed by IMF and Financial Stability Board (FSB).

Another key milestone relates to the registration of 28 crypto service providers with the Financial Intelligence Unit, India’s anti money laundering body under the Department of Revenue. 

Venkatesh R says, “Amongst the most significant milestones is the reporting entity status granted to VDA Service Providers (VDASPs) under India’s PMLA and to establish the FIU-IND as the regulator for this purpose.”

“28 virtual digital asset service providers in India have registered with the Financial Intelligence Unit-India (FIU-IND). This will bring them under the ambit of the Prevention of Money Laundering Act PMLA and also make it mandatory for users on these platforms to authenticate their identities through KYC,” says Rajagopal Menon, Vice President, WazirX.

Gaurav Mehta, CEO of Catax - Simple Crypto Tax adds, “Significant regulatory milestone was achieved as the G20 reached a consensus on recognizing the borderless nature of cryptocurrencies. This consensus focused on the need for coordinated efforts in regulating cryptocurrencies, enhancing consumer protection, coordinating taxation, and improving international tax transparency.”

Is the future perfect?

The industry leaders assert that cryptocurrencies have a huge potential and moving forward, there should be a full-fledged regulatory framework and the TDS rate of 1 percent should be slashed.   

“The appetite among Indians for crypto assets is huge and has exponentially increased in the last two to three years. They perceive it as an exciting prospect as compared to traditional investment assets such as stocks and bonds. Reduction of TDS from one percent has been widely advocated by the crypto community. With a high TDS rate, the trading volumes are moving to foreign exchanges since investors voted with their feet,” said Rajagopal Menon, Vice President, WazirX.

“To foster investor trust, authorities should provide clear and forward-looking guidance on the treatment of cryptocurrencies, backed by robust regulations. While governments have often approached cryptocurrencies with caution and scepticism, the resilience and sustained growth of the crypto ecosystem demand a more constructive approach,” adds Gaurav Mehta. 

Venkatesh R from CoinSwitch adds that a strong regulatory framework is vital as in other economies such as in Japan, this has shielded consumers from crypto scams and fraudulent activities.