By Nischal Shetty
These are interesting times for regulators in the United States. The SEC faced setbacks in a number of critical court cases, was forced to U-Turn and allow spot ETFs for Bitcoin and Ethereum, and just recently had to wave the white flag in its battle with Consenys, a critical backer of Ethereum. How the tides have turned for Gary Gensler, an ex-Goldman Sachs banker who taught Blockchain at MIT. 2024 being an election year in the US and crypto users being single-issue voters, the stage is set for a lot more fireworks on the regulation front in the lead-up to the elections.
A Sensitive Area
Crypto regulation is a sensitive area and could be done without battles being waged by all parties concerned. As India continues to shape its own regulatory framework for digital assets, understanding the challenges and missteps of US regulation offers valuable lessons.
The crypto industry in the US has faced numerous challenges on the regulation front, and the achievements of the SEC are notable for both what it has and has not achieved. One major argument against SEC is that it has targeted legitimate, compliant entities such as Coinbase, Kraken, and Uniswap, while major scandals involving entities like FTX, Celsius, BlockFi, Terra, and Three Arrows Capital (3AC) went undetected until it was too late.
This focus on established, compliant companies rather than actual fraudulent activities has not only stifled innovation but also discouraged many crypto companies from not offering their products and services to US citizens.
Hindrance To Blockchain Development
By going after utility tokens and focusing heavily on enforcement rather than fostering an environment conducive to innovation, the US has forced many developers and token innovators to incorporate out of the United States.
This approach has led to a regulatory climate that hinders the development of blockchain technology’s full potential. One of the biggest criticisms of US crypto regulation is the absence of clear, consistent guidelines. This uncertainty has left startups and established companies alike in a difficult position, unsure of how to comply and fearful of sudden legal actions.
The best example of this misaligned priority was how the SEC went after Ethereum. The real value of tokens like Ethereum’s ETH lies in their utility within the network—facilitating operations such as transactions and smart contracts, not just as speculative instruments. Regulatory bodies need to recognise and support the utility aspects of these tokens, rather than focusing solely on their potential for financialisation.
Lessons For India
As India continues to develop its crypto regulatory framework, it can learn from the US experience to avoid similar
r pitfalls and foster a more supportive environment for digital assets. India should strive for a balanced approach that supports innovation while protecting investors – the Goldilocks zone; regulation that is neither too strict nor lenient.
By focusing on the utility of blockchain technology rather than just its speculative aspects, regulations can encourage the development of meaningful solutions that can transform sectors like finance, supply chain management, and public administration.
One of the key lessons from the US is the necessity for clear, consistent regulatory guidelines. India has the opportunity to lead by example, providing a regulatory framework that is transparent and understandable for all stakeholders. This clarity can attract more entrepreneurs to the digital asset industry, confident in their legal standing and understanding of compliance requirements.
This is critical, as it equips law enforcement agencies (LEAs), such as the Enforcement Directorate and regulatory bodies such as the Reserve Bank of India, with enhanced tools to target malicious actors effectively, while fostering collaboration with compliant organisations.
Exchanges which are registered with the Financial Intelligence Unit (FIU), exemplify proactive engagement by filing Suspicious Transaction Reports (STRs) and adhering strictly to Anti-Money Laundering (AML) and Know Your Customer (KYC) policies.
This proactive approach has been in effect even before the formal inclusion of crypto under the Prevention of Money Laundering Act (PMLA), demonstrating a commitment to regulatory compliance and industry best practices. This strategic alignment between regulatory bodies and compliant platforms is essential for nurturing a secure and robust digital asset environment in India.
Regulators should also focus on educating both the public and policymakers about the potential and risks associated with cryptocurrencies. By fostering a better understanding of the technology, India can nurture a more informed ecosystem that promotes responsible innovation and the use of digital assets.
Regulations should encourage participation from a broad range of stakeholders, including startups, existing financial institutions, and individual investors. This inclusive approach can help develop a vibrant, innovative crypto ecosystem in India.
It is crucial to create regulations that prevent misuse and fraud but also promote the legitimate use of crypto technologies. By learning from the US, where excessive regulation has sometimes stifled legitimate business activities, India can aim to support useful innovations that leverage blockchain technology.
The state of crypto regulation in the US serves as a compelling case study of the complexities involved in governing a rapidly evolving digital asset landscape. For India, which is at a crucial juncture in its own regulatory journey, there are clear lessons to be learned. Embracing a balanced, clear, and innovator-friendly approach can not only prevent the pitfalls seen in the US but also position India as a global leader in crypto innovation and regulation. By doing so, India can harness the full potential of blockchain technology to drive economic growth and technological innovation.
(The author is the founder of WazirX)
Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.
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