This article is written by Kumar Shubham, a BBA.LLB(Hons.) student from National Law University Odisha.


Cryptocurrency has emerged as the new sensation in the international investments market and is often manifested as the future of world economy. However, the past few weeks have been really dramatic for the digital currency domain. The Crypto market witnessed a volatile change as the value of Bitcoin dipped drastically, taking down the value of other crypto assets and the investments of buyers, along with it. It is calculated that almost $830 billion dollars have been wiped out from the market last week. The decentralised nature of crypto coins amidst an easily manipulative market, is the major factor for such volatile and unstable condition of the market. 

Bitcoin hit the $63,000 mark in April 2021, its all-time high, following which, the market saw a major influx of investments in crypto coins from enthusiastic traders, mostly the youth. Seeing the growth in crypto investments and the risk it carries, it is now time that the market should be controlled and regulated by a centralised authority, so as to safeguard the interest of the investors. In this article, the author makes arguments as to why there is a dire need of regulations in the cryptocurrency domain. The article also throws light on the current position of crypto regulations in India. 

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Crypto market prone to manipulation and antitrust practices

The Crypto market is often alleged of being prone to manipulations, and that these currencies are targets for pump and dump scheme. In 2018, the United States Department of Justice ordered an enquiry to investigate the potential threat of price manipulation of Bitcoin and other major currencies. The University of Texas published a paper in which it was argued that the rise in the price of Bitcoin is a result of manipulation. 

Insider trading is also a tool of exploitation in the Crypto market. Absence of any centralised regulatory body makes it easy for criminals to evade any liability that arises from insider trading. Recently, the price of Bitcoin fell drastically as China moved to ban the use of cryptocurrencies in financial payments, and warned its investors against any such ventures in the crypto market. Further, the recent downfall can be accredited to Tesla’s U-turn on its Bitcoin payment policies. In March 2021, Elon Musk declared that Tesla will be accepting Bitcoin as a valid mode of payment for selling their cars. This declaration by Tesla attracted huge investments in Bitcoin across the globe, as people speculated rise in Bitcoin value. However, in May, the company reversed its declaration and said that they won’t be accepting Bitcoin any further, citing bitcoin mining concerns. This decision weakened the value of Bitcoin in the crypto market, along with other currencies. It is alleged that Musk intentionally made such manipulating declarations to sell his Bitcoin holdings at high prices, and later crashed the market. 

Terror Funding and money laundering 

It has been a serious concern for countries around the globe that Cryptocurrencies have a tendency to be used for terror funding. In the absence of any regulatory body, the flow of cryptocurrencies is untraceable. The decentralised nature of these currencies prevents them from being subject to any regulations, reviews or monitoring, as is the case with financial institutions. In many studies it has been argued that cryptocurrency was mostly used for funding the ISIS regime, and facilitating their operations. In 2015, a German media outlet claimed that they have evidence of an ISIS Bitcoin wallet receiving funds around $23 million, in a single month. 

Recently, Turkey added cryptocurrency to their terror funding and money laundering regulations list. This order will allow the regulatory authorities to investigate crypto holdings and track them as well. According to the order, service providers of the digital currency will be held liable, in case that currency is used for illegal transactions. This has been done to eliminate all threats originating from illegal Crypto transactions, and it is anticipated that many countries may follow this trend soon. 

Since, there is hardly any authority to track crypto transactions, cryptocurrency is a safe method for money laundering purposes. Recently Binance, one of the largest cryptocoin exchange, was probed for money laundering in the United States. Although these cryptocoin exchanges ask the users to undergo KYC procedure, there is no strict punishment for violating the KYC rules, which evidently defeats the purpose of the same. 

Prone to cyber risks

Cryptocurrencies use blockchain mechanism. Blockchain technology is considered very safe for transactions. However, the crypto coin exchange that facilitates such trading, often lack secure networks, making them more vulnerable to cyber-attacks. In 2018, almost $580 million worth of cryptocurrency was lost from a Japanese crypto exchange, due to cyber hacking. 

Since these currencies are decentralized and there is no monitoring of crypto transactions, this is an easy opportunity for cyber criminals to exploit the investors. Cryptocurrency is also being used as a weapon in ransomware attacks. Cybercriminals can conveniently conceal their true identity, when asking for ransom in cryptocoins. Afterwards, they can easily convert these digital assets into fiat currency, without being caught. Thus, it is important for a proper identification mechanism to exist, in order to prevent such crimes.

Safeguarding investor’s interest and to allowing the flow of legitimate crypto assets

It is estimated that almost $830 billion dollars have been wiped out from the market in the last week of May 2021, due to the sudden crash. Cryptocurrencies are not backed by any central authorities, hence they are more prone to collapse and delayed recovery. Unexpected sentiments in the crypto market can easily influence prices. These currencies are often not transparent as their company data is not made available in general domain, which ultimately results in risky speculative buying of currencies by the investors. Most investors are not aware of the nature of the crypto coin they are investing in. Few crypto exchanges in India offer more than 300 digital coins, while globally there are more than 1000 crypto assets available. Apart from this, more than 1000 crypto assets have already failed and are now inactive. Therefore it is pertinent that there exists a central authority to regulate these assets, and to remove coins which are potentially unstable or sham. 

Position of crypto regulations in India 

Time and again many countries have iterated the need for a regulatory body for crypto currencies and have taken steps to either regulate or impose a ban on crypto trading. The RBI has often issued orders and advisory against crypto trading. In 2018, RBI issued circular to certain financial entities advising them not to neither deal in cryptocurrencies, nor facilitate their transactions. However, the RBI circular was set aside by the Supreme Court. It opined that any restraint or regulation in crypto domain must be exercised in a responsible manner, with an adequate evidence backing. This judgment has basically laid the foundation for enacting Cryptocurrency regulations in India. 

The Central Government proposed its plans to bring the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 (hereinafter refer as ‘the Bill’) in the last budget session, but the Bill was held up. It is anticipated that the Bill will prohibit all cryptocurrency transactions. However, it will also pave the way for launching an indigenous “official digital currency”, which will be backed by central regulatory authorities. Given the rapid fluctuations in the crypto market and the interests of Indian investors highly at stake, the Government should not delay in introducing such crypto regulations. 

Concluding Remarks – Should India Ban or Regulate Cryptocurrency?

Since India has been considering a ban on digital currency, many digital currency platforms have expressed their concerns regarding the same. The crypto market has brought great foreign investments, as virtual capital entities like Sequoia have invested heavily in the Indian Blockchain start-ups. A ban on crypto is likely to perish all the current as well as future foreign investments. It is very much evident that the crypto market has gained a worldwide momentum and is undergoing many developments. Recently, an American crypto exchange ‘Coinbase’ went public with all its operations, hence it’s imperative to rule if a ban will completely ‘curb’ the potential misuse of digital currency, given the new developments taking place. Countries like Japan, Russia and Australia have promulgated new rules to regulate the crypto market rather than imposing a ban on it. Given the economic benefit of crypto, India can adopt these models from other countries and successfully implement them, rather than banning digital currency. 

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