Can Cryptocurrencies And Security Tokens Help Boost the Indian Economy? Digital assets' regulation will play a major role in allowing hundreds of billions of dollars of investments to flow into Indian companies

By Sudip Mazumdar

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Sudip Majumdar

In 2017, Bitcoin and other cryptocurrencies attracted massive attention by people, governments and the banking community worldwide. Both concern and excitement got exchanged in global forums and discussion groups, about potential dangers and prospects of this novel financial phenomena.

The main concern shared by all governments was ubiquitous and revolving around one word: "decentralization'. All governments rely on central legal systems and central control. By way of example, these are the centrally regulated laws of traffic, embodied in governing tools such as stop-signs and traffic-lights that create the order which allows billions of people to transport safely within a mobility-crowded world.

Decentralization means essentially the loss of control. The biggest government fear is that monetary means and currencies will flow undetected, unsupervised, allowing the mechanics for mass tax evasions, financing of criminal activities and cross-border money laundering. This is the governments' nightmare ultimately leading to waking up to a world with an epic and unavoidable anarchy.

The issue however is that, decentralization in itself, while being the leading voice of the cryptocurrencies' right-wing supporters, is not the core essence of digital assets.

Digital assets, such as cryptocurrencies and security tokens, have multiple other benefits that can revolutionize capital markets and drive higher levels of global investments while increasing (not circumventing) transparency and control required by nations.

In 2019, an inter-ministerial committee report in the Indian government recommended a ban coupled with fines and penalties on any cryptocurrencies trade. This recommendation was rooted directly in the fear of decentralization and financial anarchy.

The Supreme Court of India overruled the circular calling it "unconstitutional' and opening the door to understanding essentially that digital assets, be it cryptocurrencies or security tokens, do not mean decentralization.

As an example, a regulated Bitcoin trade, takes away the inherent anonymity of the ultimate beneficiary, provides the government with full regulatory transparency and control via KYC/AML whitelisting for each transaction, and all that while leveraging on the other benefits of this novel asset class (for example instant settlements, cross-border trading, fractional ownerships and more).

Cryptocurrencies and other digital assets represent an additional global daily trade volume of $300 billion that can be used to power economies such as India—if properly regulated.

Among thousands of companies that jumped on the crypto wagon to leverage on easy decentralized profits, a handful of companies took the higher road, which indeed was less traveled by – the road of regulation.

Companies such as Bakkt, Gemini, INX, tZero, Openfinance and a few others, have been working with the regulators and governments over the past three years to pave the path of regulated digital assets and securities.

As an example, INX Limited, an Israeli-American collaboration between Wallstreet veteran executives such as David Weild who was behind the American Jobs Act, and cryptocurrencies' rising stars, is leading the sector with the world's first ever security token public offering that was cleared by the US Securities Exchange Commission (the SEC).

This means that a new breed of exchanges, such as INX, will be able to raise global capital and trade it via digital assets such as cryptocurrencies and security tokens—all under a fully regulated regime that will drive billions of dollars into nations' economies.

As an example, an INX India affiliate exchange, as planned by the company, will enable both enterprises and younger companies attract hundreds of billions of dollars in foreign capital. This new inflow of funds may help fuel India's economy while contributing tens of billions of dollars in taxes to the Indian government.

Regulated digital assets are not the decentralized beast governments rightfully fear so much.

In the mid of the coronavirus (COVID-19) pandemic and the celebrations of the holiday of Diwali, the Indian economy, which is the fifth largest in the world, is hitting historic lows.

Prior to the crisis, the International Monetary Fund (IMF) ranked India ahead of France and the UK in nominal gross domestic product (GDP). Despite this astounding achievement, India is still seen as a developing economy with major challenges yet to be solved.

Major academic institutions such as Harvard University and financial giants such as J.P. Morgan and Fidelity have invested millions into the future of regulated cryptocurrencies. According to reports during the Coronavirus pandemic, the spread of digital assets and currencies have exceeded prime assets such as gold. The value of Bitcoin alone in India is up over 150 per cent since April 2020. There is clearly a vast interest in digital assets in India by institutional investors as well as the general public.

In the Corona era, the Indian economy must adapt its financial course to operate within the new confines along the lines of the regulatory pathway taken by the US and Europe. The new digital assets class coupled with proper guidelines may become a principle component in bringing more Indians out of poverty and into the middle class via the development of Indian regulated cryptocurrencies and security tokens capital markets.

The Indian government is at a regulatory crossroad right now. They can choose to join the vast majority of the western nations who accept and legislate for new digital assets regulations, or they may ban cryptocurrencies as a whole, regulated and non-regulated alike. One thing is for sure, there is mounting evidence that embracing cryptocurrencies with proper regulation may be the gateway to a brighter financial future to all nations, including India.

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