'A step back': Tightened regulatory norms put crypto investors in a spot

First came the Reserve Bank of India warning that crypto is not something it would back. Then came the taxation — 30 per cent tax on transfer of virtual assets — followed by surprise raids/searches by the Enforcement Directorate (ED) on all major crypto currency exchanges.

The latest salvo comes from the finance ministry, which has brought virtual digital assets (VDAs) under the Prevention of Money Laundering Act (PMLA). While all the players have welcomed the step, users are wondering if the rising guardrails are to dissuade them from getting into this.

A 21-year-old cryptocurrency investor, who did not wish to be identified, said regular government intervention in the space had negatively affected his zeal for investing virtual assets and dealing with cryptocurrencies. “I have moved my portfolio to other avenues as I don’t have faith putting money into crypto anymore,” the investor said.

“The major reason for cryptocurrency to exist was to have a sense of anonymity and not put money in the hands of intermediaries. They were supposed to democratise transactions and, in that sense, it is a step back. They should be more forward-thinking in making these policies,” said Kartik, (name changed on request), an entrepreneur who dabbles in cryptocurrency investments.

He, however, added: “Anything that instills remote trust in cryptocurrency and virtual assets is good for the ecosystem. Using cryptocurrency for illegal purposes has been one of the key challenges that global governments are facing, so addressing that concern is good.”

The outlook of the entire ecosystem should be to instill more confidence in virtual assets as a mode of investment. The move helps in instilling that trust from an asset point of view, Kartik said.

According to the notification, the exchanges between virtual digital assets and fiat currencies, and one or more forms of virtual digital assets and the transfer of digital assets will be covered under anti-money laundering law.

Resultantly, any financial wrongdoing involving cryptocurrency assets can now be investigated by the ED. The Financial Intelligence Unit — India (FIU-IND), under the finance ministry’s revenue department, will be responsible for receiving, processing, analysing, and disseminating the information relating to suspect financial transactions.

“VDA platforms have now become reporting entities, which means they have to keep records and flag off any activity which looks suspicious. So from the operations point, those who were following the KYC norms will not create a big impact. But it does mean one needs to have a team which needs to closely look at transactions,” said an executive from the crypto industry.

Players from the crypto ecosystem believe at least this will create common standards, which in turn will make crypto assets much safer.

“This will strengthen our collective efforts to prevent VDAs from being misused by bad actors,” Ashish Singhal, co-founder of crypto exchange CoinSwitch, tweeted.

“Slowly but surely, we are moving towards a regulated crypto ecosystem. Entities such as CoinDCX are now required by law to conduct due diligence and enhanced due diligence under the PMLA,” said Sumit Gupta, co-founder and CEO at crypto exchange CoinDCX.

“The extension of PMLA will also give the government more power to keep track of crypto transfers outside of India,” said Dileep Seinberg, founder and CEO of crypto neobank MuffinPay.

Gupta added: “We have been looking for a way to share data with the FIU-IND for some time now, and are now delighted that this channel has been opened.”