News

On April 5 this year, the Reserve Bank of India (RBI) issued a controversial decree requiring all of the country’s regulated financial institutions to stop providing services to business dealing in crypto within a three month period. According to the bank, the move was formally meant to protect consumers and prevent money laundering – going forward, the bank would be forming a working group was going to be tasked with studying the feasibility of issuing a state-backed cryptocurrency.

As it turns out, evidence has surfaced pointing out that the RBI has not made any serious effort towards studying the principles, the nature and the usage of cryptocurrencies. Prior to the crypto ban, no internal committee had been formed to investigate the purported risks associated with crypto trading and, as such, the ban was not backed by a substantiated decision from experts.

Naturally, the decision to ban the cryptocurrencies did not sit well with Indian cryptocurrency traders and exchanges. While some of the cryptocurrency trading platforms have decided to shift their operations to other crypto-friendly jurisdictions, many others opted to challenge the ban in the Supreme Court.

“The foremost reason we are fighting is because we know that banning is next to impossible and it will make things worse for everyone – for the Reserve Bank, for the government, for the tax department, and for the user. In addition, it will push India back in reference to blockchain adoption across the world. We always have an option to relocate to another country to carry our business, but that’s not the solution. If we cannot convince our own government, we cannot expect other governments to support us,” said Mr. Kunal Barchha, the co-founder of Coinrecoil, an Indian-based digital asset trading platform.

The proponents of crypto India have based their argument on the fact that Central banks do not have the authority to restrict or bank regulated commercial banks from dealing with any industry unless the said industry is declared as completely illegal.

RBI Eyeing Its Own Cryptocurrency

The government of India has not yet declared cryptocurrencies as illegal, and this makes the case for the entire crypto industry in the country. Furthermore, the RBI has been reportedly considering the idea of launching its own cryptocurrency and this is a sign of a possible reversal of the crypto ban. If this is true, the bank and the government can certainly not ban cryptocurrencies simply because they also intend to move into the space.

According to Ripple’s Global head of infrastructure, Dilip Rao, the RBI’s plans to launch a digital currency will definitely reshape the country’s financial landscape in case it comes to pass.

“There is a great regulatory comfort with Ripple Net, particularly in the light of the Bank for International Settlements’ policy requiring central banks to have a backup for payment systems having non-similar technology,” Mr. Rao said in a June 15 report that was published in the Times of India.

The past few weeks have been rife with extended efforts to regulate and control cryptocurrencies and New York has become the newest entity to launch its own efforts towards the same. The state’s legislature may soon send a cryptocurrency task force to investigate and report on the current state of global cryptocurrency as well as blockchain utility and legislation.

This move is part of the efforts by the state to establish formal cryptocurrency rules that could, in turn, contribute immensely to the widespread adoption and subsequent mainstream use of cryptocurrencies. The nine-person task force will be expected to provide a detailed report of their findings by December 2019 as stipulated in the summary from a meeting that was held on May 30.

New York has always been at the forefront of the cryptocurrency revolution with a number of innovation-focused approaches to digital currencies and blockchain technology. In fact, the state is hoping to capitalize on various new developments that will eventually make it a leader in blockchain technology.

As such, there is a need for cryptocurrency rules and guidelines so as to bring awareness to the users. This essentially makes the case for why the task force that was launched by the New York State Assembly. A report is expected from the Cryptocurrency Task Force department by 15 December 2019 – the report will be received by the governor who is the temporary Senate president and the speaker of the state assembly.

What Is Expected of the Task Force?

As reported by BCFocus.com an official document was released by the New York Assembly tasking the Cryptocurrency Task Force to report back on, among many other areas, the following key points:

• Review of the impact of the department of financial services’ regulations on the development of digital currency, cryptocurrency and blockchain industries in New York State.
• The number of digital currencies presently being listed and their approximate proportion of market share.
• Report on the number of exchange happening in New York and their average trade per month.
• Impact of cryptocurrency on state and local tax receipts.
• Different types of departments who are investing in cryptocurrency.
• The energy consumption necessary for coin mining operations and other policy considerations related thereto;
• The transparency of the digital currency marketplace and the related potential of market manipulation and other illegal activities.
• A review of laws and regulations on the digital currencies used by other states, the federal government, foreign countries, and foreign political and economic unions to regulate the marketplace.
• Legislative and regulatory recommendations, if any, to increase transparency and security, enhance consumer protections, and to address the long-term impact related to the use of cryptocurrency.

New York is among the growing number of states that are spearheading the gradual transition towards better understanding and the inevitable widespread adoption of the burgeoning technology.

While the role of cryptocurrencies in the evolution of currency remains a valid debate, one of the key concerns, especially for traditional financial institutions, has been the uncertainty associated with how these digital assets will affect the existing fiat monetary system that is under the control of central banks.

Dong He, the International Monetary Fund’s (IMF) Deputy Director of the Monetary and Capital Markets Department (MCM) recently published a report to address the challenges that the central banks have faced since the emergence of digital currencies. In the report, He elaborated his belief that someday when they achieve wider adoption, cryptocurrencies and other crypto assets may reduce the demand for money from the central banks.

“As a medium of exchange, crypto assets have certain advantages. They offer much of the anonymity of cash while also allowing transactions at long distances, and the unit of transaction can potentially be more divisible. These properties make crypto assets especially attractive for micropayments in the new sharing and service-based digital economy,” he wrote.

At the moment, most, if not all, existing cryptocurrencies are plagued by criticisms pertaining to their capacity to be a dependable medium of exchange. Therefore, it is safe to say that, for the time being, digital currencies are too volatile and too risky to pose much a threat to fiat currencies. In addition to this, digital currencies still lack the same degree of trust that is enjoyed by fiat currencies owing to the numerous cases of fraud, security breaches and operational failures that are characteristic of the crypto world.

However, this safe zone may not last too long – crypto assets and currencies are technological innovations and thus, over time, continuous development will certainly improve on some of these pressing issues and eventually make crypto just as appealing as fiat currencies.

Banks Advised to Step Up

A future where crypto assets are just as acceptable as fiat, or even more appealing than central bank money, is very possible and perhaps Mr. He has already seen its inevitability. In fact, he did mention that the only factor keeping crypto assets from rapid adoption is their volatility.

According to the IMF Deputy Director, central banks have the opportunity to effectively adapt with the times by addressing some of the shortcomings of the traditional global banking ecosystem in order to compete well with the emerging and rapidly growing digital currency technology.

“That means rigorously applying measures to prevent money laundering and the financing of terrorism, strengthening consumer protection, and effectively taxing crypto transactions,” he explained. “The best response by central banks is to continue running effective monetary policy while being open to fresh ideas and new demands, as economies evolve.”

The sentiment that crypto will eventually grow to be a formidable opponent in the mainstream financial industry is shared by many including Christine Lagarde, the IMF Chief who during an event in March proposed that regulators should deploy similar technological mechanisms in order to “fight fire with fire.”

Governments, regulators, and researchers are finally bringing to the light some of the less talked about issues in crypto space thanks to recent developments such as the Chinese study that unearthed the fact that there had been 421 token sales. This is a pretty huge number and in light of many other scandals of a similar kind and magnitude within the same space, regulators in Canada and the United States have recently launched a crackdown on fraudulent Initial Coin Offerings (ICOs).

The crackdown operation that was dubbed “Operation Cryptosweep” by the North American Securities Administrators Association (NASAA) involved a series of coordinated enforcement actions by state and provincial securities that were intended to clamp down on fraudulent cryptocurrency related investments as well as the entities that were backing them. Among the participants of this operation were regulatory entities from over 40 jurisdictions across North America. So far, Operation Cryptosweep has yielded about 70 inquiries and investigations alongside 35 enforcement actions that have either been completed or are pending.

 “Not every ICO or cryptocurrency-related investment is fraudulent, but we urge investors to approach any initial coin offering or cryptocurrency-related investment product with extreme caution,” said Joseph Borg, NASAA President and Director of the Alabama Securities Commission. “The persistently expanding exploitation of the crypto ecosystem by fraudsters is a significant threat to Main Street investors in the United States and Canada, and NASAA members are committed to combating this threat. Despite a series of public warnings from securities regulators at all levels of government, crypto criminals need to know that state and provincial securities regulators are taking swift and effective action to protect investors from their schemes and scams.”

In addition to participating in NASAA’s efforts, the state and provincial regulators will be collaborating with the Securities and Exchange Commission and the Commodity Futures Trading Commission to ensure that the organization’s goals of providing a safe crypto space are met.

Praise from All the Right Places

NASAA’s efforts have been lauded by a number of stakeholders operating in or in association with the cryptocurrency space – these include traders, crypto experts, and even members of the mainstream financial industry. Among the most notable supporters of NASAA’s initiative is Jay Clayton, the United States Securities Exchange Commission (SEC) chairman, who went as far as releasing a statement expressing his delight in NASAA’s execution of the crackdown.

“I applaud our fellow regulators in the United States and Canada who are coordinating and participating in efforts to police fraud in the Initial Coin Offering (ICO) markets. These state and provincial regulators play a critical role in protecting Main Street investors.” Clayton said in the statement. “The enforcement actions being announced by NASAA should be a strong warning to would-be fraudsters in this space that many sets of eyes are watching, and that regulators are coordinating on an international level to take strong actions to deter and stop fraud.”