India should consider a regulatory sandbox approach to deal with issues related to crypto products and services, economic think tank GTRI said in its report on Sunday. A regulatory sandbox usually refers to live testing of new products or services in a controlled/testing regulatory environment for which regulators may (or may not) allow certain relaxations for the limited purpose of the testing.
The Global Trade Research Initiative (GTRI) said that given the acceptance of crypto in the regular financial system in the US, it remains to be seen how India’s crypto policy evolves in the coming months.
With the new American action, with consequences on global capital flows, gold price, foreign trade, it may not be possible to live without regulation, it said.
“India may consider adopting regulatory sandbox approaches, allowing controlled testing of innovative crypto-related products and services. It may need to balance innovation with risk management and adapt to advances in blockchain technology,” the report said.
It added that any approach must factor in the core issue that the anonymity of cryptocurrencies can be exploited for illegal activities such as money laundering or financing of criminal organizations.
The US regulation so far does not address this core issue, the report said.
“Despite these uncertainties, a crypto market exists in India through trading and foreign exchanges. However, investors face risks due to lack of legal safeguards,” GTRI co-founder Ajay Srivastava said.
He said that the United States has allowed investments in bitcoins through its stock exchanges and this means the integration of cryptocurrency in traditional finance and brings them equally with stocks and bonds.
On January 10, the US Securities and Exchange Commission (SEC) approved 11 applications for spot Bitcoin Exchange-Traded Funds (ETFs), the report said.
It also said that allowing free trading of Bitcoin across stock markets could spread its volatility to the entire stock market.
“Bitcoin’s unpredictable price changes could affect a greater number of investors, including those who may not be fully aware of or unprepared for the inherent risks of cryptocurrency investments,” it said.