Last week, the government of India announced its plans to present detailed cryptocurrency taxation and also launch its own central bank digital currency, or CBDC. Both news came across a range of responses, starting with cautiously positive, but going all the way to complete rejection of both ideas from other parts of the crypto ecosystem. Many, however, read the same process and announcement as the case of the glass being half full or half empty, depending on where the individuals or organizations presently stand in the same country.
The clear upside to the same news was the fact that the government of Narendra Modi is not going to take the road that China took and completely ban cryptocurrencies. Previously, there was a range of threats in the same direction, but obviously the same is not going to take place. However, there is also tangible anger and frustration, as all those who are engaged in cryptocurrency trading and investing will now have to share 30 percent of their profits with the government. But, even with that negative reading, there is still a clear upside for this massive country and its huge economy when it comes to the potential role that bitcoin and other cryptocurrencies could play in its future.
The key factor in the same dual outlook is that events in India reverberate through the wider world. That mainly includes the fact that authorities in the second-biggest country in terms of its population are putting their weight behind the nationally-issued digital money. They are thus also joining a group of nations that are ushering their own CBDC projects and implementing them in actual financial systems.
Here, China and its digital yuan are the best examples. That also means, no matter if someone likes it or not, that the future for other digital currencies is guaranteed as well. These too must take on their place and occupy another position on the chessboard that is the digital economy of the globe. But, short term, India’s government decision does have some serious implications on the markets and how they will react to this development.
National Security Issue
The steward of the present, single-currency system of international monetary dealings is the US. The country still reigns behind the USD, which is for the wide majority of countries the go-to monetary solution on the international level. However, the same government is also taking the path of India and assessing that it needs a comprehensive study and then regulation of the crypto domain. For the US, digital currencies like BTC and ETH are no longer the playing field of a small group of crypto enthusiasts like esports players or alternative media content creators.
Instead, the most recent report calls the need for cryptocurrency regulations a question of national security. The overly dramatic label might sound funny to some, but it still showcases that there is some serious intent behind the drive to get crypto regulated in the biggest economy in the world. No matter how that might end up or even how long the entire process might last, the fact remains that like India, the US is also trying to get its crypto house in order in the coming period.
In the case of India’s move to impose taxation and do it on a pretty high note, the problem that this generates for the crypto community is clear. After all, everyone active in the community of traders and investors does the same to generate some level of profit. If those profits are diminished, so is the incentive to get into the market and try to make a profit in the first place. However, they are also a necessity and a sign of a level of maturity that a particular domain attains.
So there is no realistic way to avoid taxes. Traders and investors will have to get accustomed to these levels of taxation and those who cannot will simply need to stop their acidity. But, what is important for the same community is that the wording of the statement from Nirmala Sitharaman does not come with any level of hostility or veiled threats to the crypto community. Instead, Sitharaman also spoke of the incredible increase in the transactions of these digital assets and the need to create a tax regime that will not squash the same industry, but allow it to expand and develop further.
Many analysts are certain that the desire of India to create its own CBDC has the purpose of curtailing the development of decentralized cryptocurrencies. Bitcoin is widely used in the country and offers a range of benefits like it does in so many other developing nations where banking services are far from a regular feature of life for many individuals. Here, the desires of the government seem to mimic those of China, which also sees a threat to its economy and financial pathways in cryptocurrencies.
Here, the thought is that the development of a centralized CBDC will hinder the use of cryptocurrencies that no country can fully control or influence in any way. The only difference is the ability of nations to stop their traditional financial entities from working with companies that are cryptocurrency-based. But, if enough people begin adopting BTC and other digital currency, the need for a fiat intermediary is no longer necessary. This is why CBDC should act as a bulwark against that possibility and offer Indian citizens the benefits of BTC but do it through the national banking system.
Boost to Crypto
While the desire to curtail digital currencies that are decentralized by centralized CBDC alternatives might be in place in India, the flow of influence goes in the other direction as well. That means that CBDC development will also strengthen the case of using digital currencies that already exist. Reasons for this are multiple. First, any national digital currency will take a lot of time to become a working reality. China has been working hard on its digital yuan and it still did not get its full rollout. India will only begin its projects in the foreseeable future. At the same time, by developing a CBDC, the government is saying to its citizens that digital currencies are useful and needed. In that case, no citizen should feel dismayed from using bitcoin or other digital currency while they wait for a national one.