The Indian government this week announced that it is mulling GST on the trading of cryptocurrencies in India.
It strikes me as an extremely strange announcement given that the RBI announced last month that no regulated banking entity could work with cryptocurrency exchanges.
How you plan to tax an activity that has effectively been stopped beats me, the thriving exchange market has already been tempered. I had spoken about this previously and will expand on the implications for our ecosystem.
India’s crippling regulation of cryptocurrencies has interestingly coincided with the cooling of the cryptocurrency market.
While there would is a strong use case for cryptocurrencies, and in this excellent white paper it shows Bitcoin could indeed be a store of value, the price fall has killed any remaining Indian interest in crypto post regulations.
This is potentially damaging to the real innovation in Indian crypto, blockchain and subsequently fintech.
Although there are camps divided on the real utility of cryptocurrencies (though one must always HODL!), there is strong concurrence on the utility of blockchain.
The innovative method using cryptography to establish trust in a decentralized manner could change the way we transact (explained in an excellent video).
The use cases for digital transactions that can be verified through blockchain can be in industries as disparate as insurance (car maintenance history), healthcare (patient health data) or art (ownership of paintings).
The potential utility of this technology makes it so valuable, and the recency makes its engineers so scarce. Cryptocurrency exchanges were thus helping grow/attract talented blockchain engineers, building innovative platforms with potentially wider applications than just cryptocurrency trading.
As a very close participant in the Indian cryptocurrency exchange ecosystem, crippling crypto is could likely have a negative impact on Indian innovation.
As young startups with limited resources, the amount of capital generated through trading crypto (fees were as high as $1MM a day in India) funded tremendous innovation.
The platforms they have built could be used for trading a variety of asset classes, with speed and sophistication to attract market makers and traders.
All this combined with blockchain has resulted in high-quality technologies, built at possibly a fraction of the cost of global peers. Alas, the onerous regulation has taken a very narrow view to treat the startups as “facilitators” to tax evaders.
Hustle, though, is relentless and I expect the Indian exchanges to navigate through regulatory obstacles.
One method could be to establish peer to peer trading, another could be to launch Indian currency equivalents as cryptocurrencies for trading purposes.
Founders could also pivot their business models to become B2B enterprises that build software (exchanges?) based on the blockchain. We have a tremendous pool of talented entrepreneurs who I believe will find a method to thrive.
I sincerely hope crippling crypto does not cripple technological innovation.