Reaping India’s whirlwind… Cryptocurrencies come in from the cold

Trading in global cryptocurrencies will be worth $2.3 Billion a year by 2026, and in India alone $6.3 Billion has already been invested in crypto assets (www.wazirx.com), which is going some, given crypto’s poster boy, Bitcoin, was only created thirteen years ago: since then, however, more than 8,000 Bitcoin variants have entered circulation, so uptake levels were never likely to be low and in the brash, bright world of crypto, new markets never that far away. This is not, by any means, a short-term phenomenon. The subcontinent has more than 107 Million crypto owners (the highest concentration anywhere on the planet), with a collective ambition seemingly fuelled by the sector’s dizzying rate of progress, including successive listings of Bitcoin ETFs in the United States by major institutions such as Fidelity (www.ft.com).

And, of course, all of this plays squarely into India’s youthful and complex demographic: 60% of crypto traders on the subcontinent are under twenty-eight years old, 15% are female, and the overwhelming majority live in one of the subcontinent’s rapidly expanding urban conurbations. It's just the latest expression of what an increasingly affluent, increasingly middle class, and increasingly ambitious population can achieve.

So no surprises there.

And no surprise either that none of this has been lost on Prime Minister Modi’s Government: as it edges ever closer to a final decision on how best to regulate crypto trading (the exact shape of the legislation currently awaits Cabinet approval), it is also looking forward to the prospect of geysers of new crypto revenues gushing up all over the country, and that’s been exciting any number of civil servants in New Delhi (to the extent anything’s capable of exciting them).

Not that its all good news for the bean counters, because they’ve been scratching their heads too, over the thorny issue of how best to tax this new market: a market, after all, that consists almost entirely of fizzling streams of electrons passing across continents at 300 Million meters a second; armies of (mostly) lone wolf traders, and virtually nothing by way of physical assets capable of being snaffled up by the Exchequer: in which light the subcontinent’s current spike in crypto M&A activity (up from $940 Million to $4.2 billion last year), can start to look beguilingly like the tip of an iceberg that doesn’t really exist anywhere.

The 64 Billion Rupee Question

So once its much vaunted Bill finally gets out of Cabinet (just in time to collide with the aftermath of this year’s Budget), what exactly is the Government likely to be doing? How much of the iceberg will be left, and for how long…

Of course, that’s the 64 Billion Rupee question, but we can hazard a guess that there will be at least three non-variables (our first predications for the year ahead):

1. The Bill will, at long last, properly regulate cryptocurrency trading on the subcontinent, if only because that’s what it’s supposed to do: an obvious point perhaps, but one that’s well worth making, because the new legislation will put fresh wind beneath the traders’ wings, and that means a lot more cash geysers gushing up. India can only benefit from that…
   
   
2. The intangible character of crypto investments will also be addressed (bringing them out of the ether and down to earth): most likely by defining them as capital assets in line with the existing OECD recommendations on “Taxing Virtual Currencies” (www.oecd.org), so making any disposals subject to capital gains tax (or business income if they’re frequent and substantial enough).
   
   
3. And to accommodate the febrile nature of that army of lone wolf crypto traders, the Government is likely to introduce amendments to the TDS (tax deducted at source) and TCS (tax collected at source) schemes: requiring crypto exchanges to deduct and collect tax from their customers before the profits are coughed up: no more hiding out in the back bedroom, but for an industry that has (of necessity) evolved mostly in the twilight, that has to be a good thing too.
   
   

So there you have it…you heard it here first, and as for the iceberg…well that’s not going anywhere either. Cryptocurrencies are part of India’s and the world’s future: it doesn’t take a crystal ball to work that one out.

Executive Overview

As cryptocurrencies step out of the shadows, we’re all eagerly waiting to see what comes next, but whatever the future holds, a properly regulated (and taxed) market can only be for the good.

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