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US Crypto Regulations Between a Rock and a Hard Place

US Crypto Regulations Between a Rock and a Hard Place

In the midst of the delay for the approval of Bitcoin exchange-traded fund (ETF) applications after several rejections, and current uncertainty regarding regulatory framework, US Securities and Exchange Commission (SEC) Commissioner Hester Peirce provided insights into the matter as an opportunity for better industry development.

Last week, Heister made comments on the issues of state regulation at the University of Missouri School of Law where she opined that “entrepreneurship and innovation do not have the happiest relationship with innovation”, which may be the core reason why crypto ventures have suffered in the hands of most regulatory systems.

The SEC’s clamp down on non-compliant ICOs (issuing securities disguised as utility tokens), its rejection of Bitcoin ETF applications, and somewhat deliberate delay in providing a regulatory framework as regards the industry may have a more logical than malicious intent behind it. Innovations, while they make life easier most of the time, always come outside the norms, especially those of the regulatory system and often times drives regulators to accept changes despite skepticism.

“Regulators, for their part, tend to be skeptical of change because its consequences are difficult to foresee and figuring out how it fits into existing regulatory frameworks is difficult,” she said, implying that it’s not an easy task for the SEC to reject what seemingly looks like a financial innovation in an attempt to weigh and understand the situation correctly.

The last financial crisis has made it easier for trust issues to thrive, especially on the part of the regulator, given that some ascribe the crisis to be due to “financial innovations”. Peirce pointed out that “…every innovation — even one that almost everyone agrees is good — carries with it some risk”, something currently agreeable with the cryptocurrency system.

Accordingly, since innovations can be unpredictable, so caution must be applied when drafting regulatory frameworks, especially for a new industry such as blockchain and its underlying assets. Peirce continues by saying that “as regulators, therefore, we must allow innovation to proceed, even as we put in reasonable safeguards and watch for unanticipated consequences”, and still, it has to come with no comprise to the securities laws in place. It behooves one to imagine where the true line of trade-offs will be drawn, seeing that the core structure of the crypto industry lies in decentralization, which by implication makes it harder for any regulator.

Still, the regulatory polarity has created distinct shades of gray areas around the world. With the Chinese government adamant with its crypto ban, the Indian government chose a rather bizarre stance — first with a ban on banking services to crypto related ventures, and then planned to develop a state-backed cryptocurrency, which it shelved later on. Meanwhile, other jurisdictions have launched out to attract the “rejected”, by providing a safe haven to crypto ventures, and a few nations are developing their own state-backed crypto to augment their economies.

In the UK, the principal regulator has extended an invitation to the public through its consultation paper to better assess a possible way forward for industry regulations. It said in late January: “We are consulting on Guidance for crypto assets to provide regulatory clarity for market participants.” Meanwhile, in the Middle East, the United Arab Emirates (UAE) has also hinted on possible ICO regulations to be introduced later this year.

So far, the crypto industry has had checkered developments and have more recently been in a stalemate (regardless of minor spikes in market dynamics), and many have been waiting eagerly for the next bull-run trigger. It’s basically what most crypto enthusiasts talk about these days, consequently, dialing down tech innovation, development and mass adoption of crypto products — at least, for the innovations that they stand for — and are relying on adjuncts gunning for more institutional involvement that would supposedly propel the market further.

While the US SEC does recognize the potential this innovative technology may provide, as Peirce says. “the United States has benefited greatly from the relative importance of non-bank financing”, supposedly placing them on par with the capital market. This further buttresses the point made by SEC boss Jay Clayton who viewed crypto as a “promise for adding efficiency to our [capital] marketplace”.

However, the regulatory watchdog maintains a stance of balance that involved protecting the interests of investors as market volatility, manipulation, hacks, frauds, exchange illiquidity, and a host of other unforeseen consequences from the unstandardized cryptosystem remain legitimate concerns.

Perhaps, when the SEC, as well as other financial regulators, have finally regulated the industry, these problems will be adequately tackled. Meanwhile, the regulator itself is waiting for the maturity of the industry marked by improved oversight on market surveillance, definitive asset classification, and airtight custody solutions, before embracing the industry wholeheartedly. But it still remains to be known at what cost?

The good news so far is that earlier this year, a bill was introduced in the House to help with asset classification, that partly takes care of one problem. Nasdaq introduced its SMARTS Market Surveillance solution which may have provided precedence in the direction of play towards controlling market manipulation. On the subject of custody solutions, crypto ventures are urged to ensure best cybersecurity practices. Fidelity, Coinbase, Gemini, BitGo, Ledger, ItBi and even Goldman Sachs are among many reportedly racing toward that end.

Peirce’s overall sentiment in a manner of speaking, perhaps one shared on both sides of the tussle is that the delay in drawing clear lines may actually allow more freedom for the technology to come into its own.

 

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India Seeks External Advice on Crypto Regulation

India Seeks External Advice on Crypto Regulation

A Right to Information (RTI) report has revealed that the Indian government is seeking outside legal help in order to finalize its long-awaited cryptocurrency regulations.

The Indian government is still under pressure over the cryptocurrency debate. As time moves on, it is becoming hard to see how the government will be able to hold back the inevitable tidal wave of some 2.5 million Bitcoin users with its current, rather tired, stance on liberalizing cryptocurrency use among the nation’s 1.3 billion population.

Following regular meetings of a government committee formed to examine what shape or form new legislation might take, it is expected that a comprehensive report will be submitted to the Ministry of Finance later this month. A law firm has also been engaged for their input by request of Secretary of Economic Affairs, Subhash Chandra Garg. The firm Nishith Desai Associates has now presented a proposal which will form part of the government’s final decision on cryptocurrency regulation.

Some details from the submitted suggestions from Nishith Desai have been published which indicate that self-regulation ahead of an outright ban is recommended, as stunting the growth of cryptocurrency use in India would not be a positive step for the nation. As the paper states:

“History has taught us that such technologies (blockchain) should be regulated and not banned since banning is likely to be counter-productive and may also suffer from legal infirmities.”

The paper went on to explain the different ways of licensing cryptocurrency-based businesses by categorizing assets into discretely separate elements, stating: “For the purpose of legal analysis, all crypto assets are not alike… Broadly, crypto assets can be considered to be of three types- payment tokens, security tokens, and utility tokens.”

The industry in India now awaits the outcome of the government’s next — hopefully, more decisive — decision, on how to regulate the space later this month, as originally indicated by  The New Indian Express.

 

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India Worried Crypto Could Destabilize Rupee

Crypto Could Destabilize Rupee, Says Indian Gov’t Committee

A report by Quartz India suggests that the Indian government is concerned about the effect cryptocurrency may have on its national currency.

According to the article, a high-level panel working on a cryptocurrency regulatory framework has observed that a less-explored area for crypto use does exist and possesses as much risk as with the already established concerns of money laundering and terror financing.

The committee, led by the economic affairs secretary in the ministry of finance Subhas Chandra Garg, has expressed concerns about the impact of cryptocurrency on Indian rupee in the long term should it become a recognized medium of exchange.

“If Bitcoin and other digital currencies are going to be allowed to be used for payments then whether it will end up destabilizing the fiat currency is a major concern for them [the Garg panel],” the post reads, citing an anonymous crypto enthusiast who met with the ministers.

The article has cited another report compiled by the Bank for International Settlements (BIS) — of which the Indian central bank is a member — as being the basis for the fears which are further amplified by the uncertainties cryptocurrency may have on the financial ecosystem as a whole as current frameworks are void of an encompassing metric system to account for such scaling effects. More so, the BIS may also be worried that central bank issued digital currencies may also contribute to the instability of the financial system as well.

Perhaps these may be legitimate concerns, as cryptocurrency has so far demonstrated scaling features that could put legacy systems out of commission, and hence affect traditional banks that are unwilling to upgrade. Some forward-thinking financial institutions have begun exploring how to use the blockchain for interbank relations and are considering a digital currency to that effect.

While the banks involved in the transition to blockchain-based systems have stated that the digital currency will be for cross-border payments and would only involve bank-to-bank transactions, the BIS had warned last year that digital coins might destabilize traditional lenders if offered widely to the general public.

The legality of cryptocurrency in India remains flimsy since the committee involved with drafting a regulatory framework have given mixed signals on their stance with digital currencies. At one time, they recommended a ban on cryptocurrency, and later on, warmed up to the idea that “cryptocurrency cannot be dismissed as completely illegal”. With plans to develop its own state-backed cryptocurrency currently on hold, the threats may have indeed been real to the nation.

Rahul Raj, founder of Koinex, has opined that such worries are premature, as nothing of the sort could happen in the near term given that cryptocurrencies are only being used in a very small circle for purchases. But it was further suggested that the concerns can only become of effect if blockchain has scaled to the level of Mastercard and Visa.

Bitcoin News published early today a report on a sample poll survey revealing that in the US, only 3% of people used Bitcoin to make purchases in the past month. This goes further to prove Raj’s point and while the hype about cryptocurrencies is mainly bolstered by the speculative value, the utility aspect of most blockchain products are still a while off from full-scale adoption.

 

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Banks in India Push for Blockchain in Lending

Banks in India Push for Blockchain Use in Lending Business

Some major Banks in India are reportedly combining resources to harness blockchain technology in the lending business to cater to micro, medium and small scale enterprise (MSMEs) for transparency and reliability of credit data structures.

As reported by the Economic Times, a band of 11 banks to include Standard Chartered Bank, ICICI Bank, HDFC Kotak Mahindra Bank, and South Indian Bank are collaborating to launch the country’s first blockchain-based funding system for small and medium enterprises (SMEs).

Abhijeet Singh, head of business technology at ICICI Bank, a founding member-bank of the coalition. was quoted as saying, “The core objective of having such a ledger-network is to ensure transparency in credit disbursement, especially in the underbanked section.”

The credit data system in the region is a far cry from ideal; basically resulting from falsified or inaccurate credit assessments and profiling. This invariably affects the lender’s trust in such data as it exposes them to high-risk situations.

The system to be developed is described as one which will essentially allow participating banks to share data along the supply-chain through the blockchain, thereby ensuring the transparency and credibility of the data.

India has seen its fair share of blockchain activists and crypto sympathizers, however, the government through its regulatory body — the Reserve Bank of India — with its blanket ban on crypto, has made it tough for the crypto side of the industry to develop. This move by the collaborating banks, however, may prove useful to future adoption of blockchain technology in India.

No lost luster in India

Against the odds of the current crypto market, blockchain continues to prove in many ways and in different economic strata that it can ameliorate some of the major crisis ongoing in legacy systems plagued by lack of transparency and accuracy of data systems.

Perhaps Bitcoin and cryptocurrency hype is the problem after all and not blockchain. The government does frown at the idea of an unregulated cryptocurrency and is no longer keen on issuing a central bank digital currency any time soon despite claiming last year that it was considering it as an alternative to minting physical cash which weighed heavily on the government. It is now focused on structuring a formidable crypto legislature for the industry.

It does count as a win for the industry since such a blockchain-based initiative could be carried out by banks and not fintech startups, being the more dominant feature in blockchain space.

On the other hand, cryptocurrencies are also important streams in the balance for blockchain development and adoption, as they provide incentive models to keep certain blockchains decentralized — an essential quality of the technology.

The bottom line is; India may need to step up, as its indecisiveness may prove unfavorable in the long term. Just as reported by a recent Accenture report, noting that India must improve its skills pool with regards to emerging technologies.

 

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Indian Bank Closes Influencer’s Account for Making Crypto-Related Transactions

Indian

Indian online bank Digibank has closed down accounts of several people suspected of crypto trading, including that of popular local crypto influencer Indian CryptoGirl, who Tweeted the news.

After India’s Kotak Mahindra Bank, Digibank also starts sending anticrypto notices

“We observed transactions for in cryptocurrencies, hence we are putting a credit freeze in your account. You will not be able to deposit any more funds & within 30 days we will close your account” pic.twitter.com/6eemcOayP5

— Indian CryptoGirl (@DesiCryptoHodlr) January 15, 2019

The crypto owner had Tweeted in the past about messages received from banks to local Indians, warning them that central bank (Reserve Bank of India) rules would lead to banks shutting down accounts suspected of crypto trading.

She made her position clear: “I’ve been a user of DBS’ Digibank for a year. Although I regularly used Kotak Mahindra Bank for my cryptocurrency transactions, I used Digibank only 7 times throughout the year. On January 14th, I received multiple messages from my twitter followers regarding an account closure notice by digibank. I checked my mailbox and found the mail myself.”

In reply to a question, she further said, “Banks have interpreted RBI’s guidelines as per their own convenience. This, however, is tantamount to taking the law in your own hands. RBI has only prohibited banks from working with businesses offering cryptocurrency solutions and NOT individuals from trading cryptocurrencies between them.”

India has been facing a lot of controversy since last year regarding cryptocurrencies. RBI has banned banks from dealing with crypto related transactions. It has even stopped development of its own centrally-backed cryptocurrency.

The issue has been taken up by the local blockchain and crypto association, with the case running in the supreme court. RBI’s stance is that cryptocurrencies provide an easy means of laundering money and helps tax evasion. The industry leaders, however, claim that cryptocurrencies are designed to be censorship resistant and the ban would only lead to a thriving underground marketplace – exactly what the government wants to eliminate.

 

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India May Legalize Crypto but with Strict Conditions

India

The Indian government may be planning to legalize cryptocurrencies in the country albeit with strict conditions.

A government committee has been formed and is reported to have held meetings twice to discuss the issue. It is expected that a comprehensive report will be submitted to the Ministry of Finance by February 2019, reports The New Indian Express. However, it appears that the legalization will be allowed under strict conditions.

The committee has agreed that cryptocurrency cannot be considered as entirely illegal, with current debates going on in the committee.

Apart from these meetings, an inter-disciplinary panel has also been formed. This panel will look into the legal matters and involve the stakeholders such as crypto experts and exchanges to ask for their opinions on the matter.

It is important to note that in March 2017, the first government panel to tackle the crypto issue suggested a complete ban on cryptocurrencies and assets. However, a second committee was formed last year to revisit this issue with the intent of regulation and legalization.

The “ban” suggestion of the first panel led to the decision of the Reserve Bank of India to render cryptocurrencies illegal. This decision was challenged in the supreme court of India and as a result, the second committee was formed. However, as a backlash, some cryptocurrency firms such as Zebpay Exchange closed their businesses in India. Zebpay blamed the Reserve Bank of India for this decision and its representatives claimed that their bank accounts were seized, meaning it could not operate in a reasonable way.

Legalization reports have emerged from India in previous months, so the rumor mill hasn’t let off. For example, in the middle of 2018, media reports came out claiming that the second committee considered cryptocurrencies to be legal assets.

 

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Accenture: India Needs New Skills for 4th Industrial Revolution

India Needs New Skills for 4th Industrial Revolution

An Accenture report has highlighted that India must improve its skills pool over the next few years to keep abreast of its push to promote the adoption of emerging technologies.

The ‘Fueling India’s skill (r)evolution’ report warns that if the current skills gap can’t be bridged, this could result in the loss of as much as USD 1.97 trillion in GDP growth promised by investment technology.

India currently has a waiting room full of international clients who had previously given up on conducting business in the country, who would otherwise have been first in line had they been given clearer guidelines by the government and seen a change in current punitive regulation.

The client base in India is huge and are more than willing to turn cryptocurrency into Satoshi’s P2P dream. The right words from the present government and the Reserve Bank of India have the potential to kick-start a massive surge of interest in what cryptocurrency can offer across the nation’s 29 states, and further invigorate an already thriving economy.

According to the report, thriving new technologies such as AI, augmented/virtual reality (AR/VR) and blockchain are also ready to take off in India, but not without rapid re-skilling and up-skilling at scale. The report highlights the need for a new much larger skills base in advanced technologies in the country. Chairman and Senior Managing Director at Accenture in India, Rekha M Menon, suggested:

“We must offer more experiential on-the-job training and help people adopt life-long learning as their jobs are transformed. Digital tools and applications — like artificial intelligence, analytics and blockchain — will be essential in delivering these new learning approaches.”

Menon added that such skills simply can’t be learned in the classroom but require essentially “human skills such as creativity, empathy and ethical judgment”.

 

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IG of Police in India Wary About Crypto Investments

IG of Police in India Wary About Crypto Investments

The news outlet Business Standard reported yesterday that Jammu and Kashmir police in India have issued a public warning with regard to investing in cryptocurrencies, noting the associated heightened risks.

The Inspector General of the police crime branch issued the warning in a statement saying: “The general public is informed not to make any type of investment in cryptocurrencies, virtual currencies such as bitcoin because there is a real and heightened risk associated with them,” citing the instability of the market values of the digital asset class.

His concerns were especially directed towards retailers who were at risk of losing their “hard earned money” as a result of exposure to “sudden and prolonged crash.” He further cautioned the citizens of the state to be wary of such investments as they are not backed as a “legal tender” and not under the control of any “central financial institution.”

India has been careful on deciding a suitable regulatory oversight of digital assets and has in the recent months been more focused on the blockchain and AI technology aspects than yielding to the acceptance of cryptocurrency within its walls.

The final draft for a crypto-bill which was expected last month is yet to be released meanwhile a rather strange development ensued. Just a few days back, the Central Bank of India pulled back from its state-issued cryptocurrency project. This was rather puzzling as few days before the project was shelved, a local English news outlet reported on the possibility of legalizing digital currencies, according to an unnamed official.

However, recent stats from its population reveal that those currently involved with bitcoin stands at an amazing 2.5 million. One could say that an approximate 5% of the total population of India into cryptocurrency isn’t a fact to ignore.

On the bright side, it would seem that some within the government are optimistic about the distributed ledger technology and the fight is only against bitcoin, altcoin, and cryptocurrencies in general – since it has decided to stop its own “crypto-rupee” indefinitely.

 

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India Could Be in the Drivers Seat If Legislation Activates Its Huge Bitcoin Potential

First Large-Scale Crypto Jacking Strike in India Targets Conglomerate

The Indian government is under pressure over the cryptocurrency debate. As time moves on, it is becoming hard to see how the government will be able to hold back the inevitable tidal wave of some 2.5 million bitcoin users with its current, rather tired, stance on liberalizing cryptocurrency use amongst the 1.3 billion population.

This week, again, questions were thrown at the Indian Ministry of Finance by India’s Lower House and it appears that the answers due to be forthcoming on December 28th are once more, past their sell-by date. The potential for sensible legislation has been missed once again.

The current stance is familiar to those following India’s cryptocurrency conundrum; If the following response is the result of an informed and well-presented argument by the Ministry of Electronics and Information Technology, the Reserve Bank of India (RBI), the Securities and Exchange Board of India, and the Central Board of Direct Taxes, then discussions have fallen short of the mark, as the result offers no clarity whatsoever:

“In absence of a globally acceptable solution and the need to devise a technically feasible solution, the department is pursuing the matter with due caution. It is difficult to state a specific timeline to come up with clear recommendations.”

To recap, for those who haven’t followed India’s cryptocurrency battle, local crypto traders and investors have been managing with Indian ingenuity. Since the Reserve Bank of India’s (RBI) decision last year, Indian traders are adapting as only Indians can do, and are doing it with great success too, with homemade P2P platforms and exchange adaptations using P2P trading.

In the meantime, Dabba has grown from strength to strength, profiting from the RBI ban. Working via the messaging app Telegram, with money as cash routed through the various channels in the hawala system, then passing either officially or unofficially to the foreign account where bitcoins are transacted. Payment is then made in cash or check and the deal is done: no exchange, no Indian bank.

For some exchanges, the RBI ban has had minimal impact for those choosing to announce the return of Indian rupee (INR) deposits, contrary to the government ruling in July, which effectively removed INR deposits and made withdrawals illegal. In India, there is always the potential to circumvent bureaucracy given the inclination and the incentive.

The concept of a national cryptocurrency, a Central Bank issued crypto, has come and gone, and may even return once more. Last April’s enthusiasm has turned again to caution with India’s Central Bank opting for the well-trodden wait and see approach, claiming that the industry is still in its infancy so therefore inappropriately positioned for such a bold move, despite its potential, until perhaps other nations have either succeeded or failed with similar ventures.

How India has resisted abandoning its punitive RBI legislation, given the backdrop of staggering statistics, is quite baffling, and a feat in itself. As one of the world’s largest digital economies, with 2.5 million bitcoin users, discounting all other cryptocurrencies and vibrant crypto black economy resistance seems hopeless, as one government official astutely observed, resistance is finally waning, suggesting that the government is now:

“Recognising the enormous magnitude of coming down hard on cryptocurrency across all 29 states, the research has now forced the hand of the government to align itself with India’s obvious talent in digital technology.”

He added that legislated adoption by India with support from the central bank would have “far-reaching effects throughout the world”: in other words, a waiting room full of international clients who had previously given up on India, expecting total prohibition to be just around the corner, would be first in line to do crypto business in the country.

The client base in India is huge and are more than willing to turn cryptocurrency into Satoshi’s PTP dream. The right words from the present government and the RBI have the potential to kick-start a massive surge of interest in what cryptocurrency can offer across India’s 29 states, and further invigorate an already thriving economy.

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