US regulators warns of crypto threatening financial stability, where does India stand on it?

Ever since the Bitcoin was launched more than a decade back, by an unknown figure known as Satoshi Nakamoto, cryptocurrencies have been shrouded in mystery. It’s ironic that while blockchain-based currencies unregulated currencies promise transparency, they are also known for unpredictable fluctuations in their rates. Although the 2017 surge in Bitcoin turned many into overnight billionaires, crypto doesn’t just drop when it weakens, it simply crashes. This explains why banking regulators across the world and in the US are apprehensive about the instability of this digital asset.

Stablecoins that aren’t so stable

Currently, multiple regulators in the US are calling for norms, which can tackle the risks associated with stablecoins. This comes after another ironic twist this year, when stablecoin Terra (UST) and its sister token Luna crashed, and took down $60 billion in investor wealth with them. These assets are different from other crypto coins, since they are pegged to the value of the US dollar or assets such as gold, in order to be more stable. But Terra was an algorithmic stablecoin, which drew value from algorithms that are in turn linked to other crypto assets.

The recommendations came with a 125-page report created by a Financial Stability Oversight Council, which is concerned that unstable cryptocurrencies can harm US economy. This council was created after the 2008 financial crash, to spot risks and avoid instability. Their observation on stablecoins carries weight, since the cryptocurrency, relying on other crypto assets, is itself considered to be standing on shaky foundation, as this year’s Terra crash revealed.

India’s place in the crypto space

RBI governor Shakti Kanta Das highlighted this earlier this year, when he said that cryptocurrency is based on nothing but speculation, since it draws value from make-believe. The Indian banking regulator has always been on guard against crypto and has also called on the government to ban it. But there’s lack of clarity on the state’s stand on it, since it has taxed profits earned from crypto trading, without saying anything about its legality.

India is a significant force in the crypto market, since it has 10 crore out of 30 crore crypto owners worldwide, and this makes the country’s stand on digital assets crucial. A lack of regulation further hurts, since Indians have already lost more than ₹ 1000 crore to crypto scams. While there’s no clarity about a crypto ban in India, its central bank is set to issue its own digital currency, the CBDC.