According to regulatory sources, the brand promotion could mislead retail investors as the legality of cryptocurrency itself is under the scrutiny of the central government
In the absence of a definition and framework, terming and selling it as a digital asset could be very risky for investors,” said a regulatory official
Cryptocurrency exchanges, which are into brand endorsements in the midst of an uncertain future for the industry, have drawn the attention of regulators and tax authorities. According to regulatory sources, the brand promotion could mislead retail investors as the legality of cryptocurrency itself is under the scrutiny of the central government.
“These exchanges are self-regulated and do not come under any regulator or authority. They trade in crypto variants including bitcoin with no legal sanctity. In the absence of a definition and framework, terming and selling it as a digital asset could be very risky for investors,” said a regulatory official.
According to him, the deliberations over the crypto framework is still in the works. The concerned ministries and regulators are talking to stakeholders on whether to regulate or to put a complete ban on it, the official said.
A government-constituted panel has received suggestions and feedback and those are being evaluated. Issues such as beneficial ownership and who to be held accountable in case of loss have been reviewed, according to a source in the government. Also, the government is taking cues from other countries on treating crypto.
Exchange platforms including Coinswitch Kuber and CoinDCX have been promoting crypto variants like bitcoin as a digital asset, and they ask investors to start trading in bitcoin with a minimum investment of Rs 100. One of the promo lines is ‘trade karo befikar’. These advertisements typically come with disclaimers in small font saying cryptocurrency is an unregulated digital currency, it’s not a legal tender and that it is subject to market risk.
“There is no classification on whether it could be treated as a currency, asset, financial services or a commodity. Endorsing them as an asset is something which has been proposed by the industry players but not accepted yet by the government,’’ said the official. Without a proper classification, it is not advisable to bet on such speculative trade, he added.
However, industry players believe it is a transparent platform as information is available in the public domain. “We have made a full disclosure on our website, entailing crypto as an asset class. Besides, we are working on a standard disclosure that will be accepted across the exchanges dealing in it,” said Ramalingam Subramanian, head of brand & communication, CoinDCX.
On the concerns over crypto trading in India, Ramalingam said after Supreme Court’s March 2020 order lifting the ban imposed by the Reserve Bank of India, cryptocurrency exchanges had resumed operations. ‘’They have aligned themselves and started the process of self-regulation by setting up know your company and anti-money laundering rules in place. As an exchange, we too have ensured our operations follow law of the land. We believe that the crypto industry in India should be regulated and a taxation structure should be in place,” he said.
Industry players has been pushing for regulating the crypto universe as they believe banning is not a solution.
Cyrptocurrency player association IndiaTech.org recently made a five-point policy recommendation to the government for regulating cryptocurrencies. The proposal includes introducing a system to register homegrown exchanges. It’s part of a whitepaper released by the body, seeking a definition of cryptocurrency as a digital asset. The industry is awaiting a dialogue with the government on this.
The government is working on the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, or Crypto Bill, and it’s expected to be introduced in the monsoon session. Those who are invested in bitcoin could be liable for both goods and services tax and income tax. The Centre may also provide an exit window to traders.
Earlier, the Ministry of Corporate Affairs had made it mandatory for companies to disclose profit or loss on transactions involving cryptocurrency. While the Income Tax Department too is looking at the possibilities of seeking declaration in tax returns, it can’t be done until crypto is categorised, said a tax expert.
Meanwhile, the Reserve Bank of India has in an informal way urged banks to cut ties with crypto exchanges as its ultra speculative, according to reports.
In India, crypto transaction volumes are swelling. Some 8 million investors now hold around $1.4 billion in crypto-investments, industry estimates suggest. This could not be verified with official data.
Recently, Finance Minister Nirmala Sitharaman had said the government would take a “calibrated” approach to crypto trading and that “negotiations and discussions” were going on with the RBI on how to regulate cryptocurrency.