Crypto’s growing risks and why India must regulate without further delay

Crypto’s growing risks and why India must regulate without further delay

#SSBs Warn of Crypto Threats, Call for Urgent Regulation

Virtual Digital Assets (VDAs) have transformed global finance with their decentralization, programmability, and seamless transactions. However, these innovations come with significant risks, highlighted by global Standard Setting Bodies (SSBs) like the IMF, FSB, and IOSCO. The rapid rise of VDAs has led to extreme market volatility, speculative trading, and limited liquidity, making investors vulnerable to sharp price swings. The growing connection between VDAs and traditional financial systems presents an even bigger risk, as a major downturn could destabilize financial institutions and the broader economy.

Security vulnerabilities, cyberattacks, governance failures, and bugs in smart contracts add to these concerns. The growing dominance of USD-backed stablecoins threatens monetary sovereignty, potentially weakening local currencies and undermining central banks’ control. Furthermore, fraud and scams, such as BitConnect and GainBitcoin, highlight the lack of consumer protection, leaving retail investors exposed to exploitation.

Global SSBs have stressed that regulation is necessary to protect investors and prevent damage to financial stability. These bodies have already provided frameworks, leaving the responsibility with governments. India’s delay in adopting a regulatory framework is no longer viable.

In response to these risks, the Government of India is revisiting its crypto policy. Ajay Seth, Secretary of the Department of Economic Affairs (DEA), revealed that the government had prepared a discussion paper with the Reserve Bank of India (RBI), but it is being reassessed due to shifts in global perspectives on stablecoins and cross-border crypto transactions. India’s G20 presidency in 2023 saw some stability in global crypto regulations, but growing concerns about stablecoins and international crypto adoption have complicated the issue.

Globally, regulators have already acted. In 2023, the IMF and FSB released a roadmap for crypto regulation, and IOSCO finalized policy recommendations. Many countries are implementing frameworks for VDAs and stablecoins to reduce risks, ensure financial stability, and prevent exploitation.

India cannot afford to delay. The frameworks provided by global regulators offer a template for India to adopt, ensuring a clear regulatory structure that balances innovation with safeguards. The government must urgently implement regulations mandating cybersecurity, regular audits, transparency, and consumer protection.

By acting decisively, India can safeguard its financial systems and position itself as a leader in responsible VDA development. The time for regulation is now—delay is no longer an option.

INDIA