15 September 2023

The crypto market threatened to capitulate as Bitcoin tested $25,000 psychological support mid-week. It has, since, recovered after registering a BTC death cross (the crossing of its 50-day and 200-day moving averages) to boost hopes of an extended rally. BTC dominance has increased to 50% from 48.5% during the week, signifying troubled times for altcoins irrespective of how Bitcoin moves.

However, a death cross usually leads to considerable declines in longer timeframes – so we are not out of the woods yet. US CPI data suggests that the Fed will continue to hold higher interest rates for the foreseeable future while the US Dollar (DXY) index stretches its rally beyond 105.

Today, we focus on the evolving regulatory side of the ecosystem – the G20 meet in New Delhi and the IMF-FSB’s recommendations. It is looking rosy from this angle.

Let’s dive in.

Top-3 stories of the week:

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2

3

The newsletter is put together by Giottus Crypto Platform and The News Minute’s Brand Studio. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

• Total crypto market cap - $1.06 trillion - UP 1%

• Bitcoin price - $26,602 - UP 1.3%

• The dollar index (DXY) - 105.3 - UP 0.4%

• Bitcoin Dominance - 50.01% - UP 1.1%

• Crypto Fear and Greed Index - 45 - the market is in fear

ICO CALENDAR

• 18^th Sep - Virtual Coin (VRC)

• 18^th Sep - Hibiki Run (HUT)

THE HOT TAKE

Crypto regulations are coming – it’s good for the ecosystem

Last week, the International Monetary Fund (IMF) and the Financial Stability Board (FSB) released a policy paper at the request of G20 nations under India’s presidency. This paper discouraged an outright ban on crypto assets and suggested the implementation of a licensing system for crypto asset platforms, subjecting them to anti-money laundering and counter-terrorist financing standards.

During the summit held last week in New Delhi, a consensus declaration was signed, emphasizing the urgency for cross-border crypto asset regulations. Following this, we believe a robust framework will be developed that will act as a benchmark for regulating crypto assets in future.

Whistle! Whistle!

This is exactly what our ecosystem has been craving for – clarity, purpose, and implementation – with regard to regulations in the country. It is heartening to see that we have moved away from discussing an industry ban, which is impractical in many ways. Virtual Digital Assets (VDA) including crypto assets have a meaningful place in the financial ecosystem and a coordinated effort from the government and crypto platforms can make it stronger and safer.

We decode how this will play out over the years.

1) A common framework will take years to enact

The paper aims for global financial entities to gather detailed data on various crypto assets used for payments till 2027 and this will be categorized by type, sector, and country. For these to work, a common database could come in place which will have bilateral or multilateral arrangements for the automatic exchange of information collected under CARF (Crypto Asset Reporting Framework). Although this could come in handy for countries to set up a centralized repository, basically an Aadhar-like system, for digital asset investors, this will take a few years to materialize and will require close cooperation between the signing countries. But, once such a system becomes operational, transactions of all G20 residents can be tracked across borders. Risk profiling and audit of non-compliant actors will become a norm.

2) A new licensing system for crypto platforms

The IMF-FSB has suggested implementing a licensing system for crypto-asset platforms, which is also likely to be part of India's regulatory framework. Licensed or supervised crypto-asset service providers will report to their governing entities on capital flows, tax deductions and financial integrity. In this context, several Indian exchanges including Giottus have a strong head start. We are already implementing advanced KYC norms, on par with the banks and we are part of other reporting systems mandated by the government.

3) A centralized tax system will stem from the regulations

The CARF will likely implement a broad tax reporting framework that closely aligns with the common reporting standard (CRS) applicable to other non-financial assets, such as real estate. Under this law, crypto transactions done by Indians on foreign-domiciled crypto exchanges such as Binance or Kucoin will also come under the purview of automatic exchange of information protocol. If such global platforms fail to adhere to India’s regulatory framework, they can be barred from operating in the jurisdiction.
Also, the 1% TDS on sale and flat 30% tax on profits may be relooked at as policy evolves. VDAs might become just another instrument with normal capital gains attached.

4) Banking support for crypto will become seamless

We argued this in our Hot Take last week before the summit happened. A well-defined regulatory framework along with registered crypto platforms will mean that banks will extend support more willingly in the future. The advent of CBDCs will also aid in this exercise.

5) India can still implement select restrictions

While it is clear that India will not look at a blanket ban, the country may take a targeted approach towards certain elements of its use. While VDA as an investment has found favour, India may not allow crypto to become a ‘currency’ in the true sense. We believe that some aspects are yet to have a clear discussion and policy – things such as crypto mining, creation of new VDAs or tokenization, sourcing capital via VDAs and marketing VDAs as a financial instrument. These discussions will evolve one step at a time so it may be a wait for enthusiasts of such elements.

Key takeaway

There has not been a better time to be a crypto investor in India. All the pain of uncertainty over the years may finally turn out well if the above gets enacted. Of course, we need patience as policy at an international level takes time to implement. However, recent moves instil confidence in the asset class and augur well for safe investing practices. Registered Indian exchange platforms will become gatekeepers of the ecosystem and we will be ready to serve you the best products available globally with added protection.

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

Disclaimer: Crypto-asset or VDA investments are subject to market risks such as volatility and have no guaranteed returns. Please do our own research before investing and seek independent legal/financial advice if you are unsure about the investments