What’s amazing is the fact that large-scale holders and miners of bitcoin are not making profit-booking even at this rate, when prices surged $10,000 in 10 days. Rather, they are buying more from the sell-off by small investors and miners in clear anticipation that the bitcoin price would push to the $100,000 mark in the short term. That would be historic!

Then, why is India choosing to bring in a law that would make bitcoin and all other assorted coins illegal in the country? Why is India pushing for a digital coin by its central bank, the Reserve Bank of India (RBI), whose value will never exceed the Indian rupee? After all, what's the point of introducing a digital currency that’s no better than your debit or credit card, or so to say!

By the time India is scrambling its response to investor-frenzy that the crypto sector has been witnessing over time, the crypto industry has crossed $2.5 trillion in market cap and is at a striking distance of $3 trillion. Bitcoin accounts for about $1.25 trillion, placing it ahead of Tesla and Meta (formerly Facebook) in the list of companies with the highest market cap.

But why is India not impressed? The answer lies in the experience of other governments and central banks in this context.

Closer home, China has banned trading and mining of all cryptocurrencies in the country and has launched a crackdown, to the extent of snapping power supply, for instance, to crypto mining centres. It has launched a pilot project to introduce e-CYN, the official digital Yuan, which will formally be launched during the Winter Olympics in February 2022.

What is the trigger for China’s hostile response to cryptocurrencies that flourished all thanks to hardware and mining support it got from the country in the last decade?

It is because there is a massive flight of capital from mainstream financial systems to crypto. In 2020, as per a conservative estimate, China saw $50 billion flowing into cryptocurrencies. What’s worse is no one knows how much it actually was.

Technologically, spying or prying on what happens within blockchain networks is not possible. They are protected by the most stringent encryption systems. No government or central bank has access to these systems.

It certainly doesn’t sound amusing to governments and central banks. All over the world, central banks are in a tizzy, not being able to stop the flight of capital to crypto, where the money is either mostly parked in sheer idleness or funding projects such as decentralized finance (defi) on the same blockchain network.

In simple words, Defi is the loan facility to the members on the network from the money that members have parked there. All this happens without a human touch through what is called a ‘smart contract’, which is an agreement in the form of programmed software on the network. It works in an automated fashion.

In essence, you may say that the cryptocurrency sector is ready with a parallel financial system that threatens to make the existing central bank monitored financial system obsolete. Maybe, this inference is an exaggeration but the crackdown on crypto by some governments such as China and Nigeria is an indicator that they are nervous, if not downright frightened.

So, what does the Indian government want to achieve through The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021?

By trying to push this legislation, the Indian government seems to be following the best responses that the governments around the world have been able to come up with. In the US, there has been a regulation for cryptocurrencies since 2013.

On Monday, Australian Minister of Finance Jane Hume hogged international headlines for her critique of one of the key officials of the Reserve Bank of Australia for calling cryptocurrencies a passing “fad”, rather than an asset class.

“I would like to make something clear: cryptocurrency is not a fad. It is an asset class that will grow in importance,” Hume said.

Amid the growing divergence of opinions between the central banks and the governments, the Indian crypto bill is likely aimed at achieving the balance that some crypto-friendly nations such as the US and Canada have struck.

US Prez Joe Biden has announced his decision to re-nominate Jerome Powell as Federal Reserve Chairman and elevate Fed Governor Lael Brainard as vice chairwoman on Monday. His decision is also in recognition of their sustained and meaningful engagement with the cryptocurrency debate and not giving unfettered freedom while also not stifling the growth of cryptocurrencies. (IPA Service)