Think tank advises sandbox approach for crypto currencies; Know what it is

Investing across various sectors is gaining popularity in India, people are diversifying their portfolio into fixed deposits (FD), stocks, gold, real estate, mutual funds and the emerging trend of cryptocurrencies. Cryptocurrency, a virtual form of currency designed to facilitate transactions stored in a computerized database, is gaining popularity in India’s investment landscape. Global Trade Research Initiative (GTRI), an economic research institute, has proposed setting up a ‘regulatory sandbox’ to address issues related to crypto products and services in India.

A regulatory sandbox involves live testing of new products or services, such as cryptocurrencies, in a controlled regulatory environment. Regulators may grant specific exemptions for testing purposes. GTRI suggests that given the growing acceptance of crypto in the traditional financial system of the United States, India should explore a regulatory sandbox approach to balance innovation and risk management. Given the potential impact of crypto on global cash flows, gold prices and foreign commerce, it is important to observe the evolution of India’s crypto policy.

The Institute for Economic Research stressed the need for regulations in the face of the thriving crypto landscape in the United States. The report suggests, “India may consider adopting a regulatory sandbox approach, 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.”

Addressing a serious concern, the report highlights that any strategy will have to grapple with the anonymity of cryptocurrencies, which could potentially be exploited for illicit activities such as money laundering or supporting criminal organizations. In particular, current US regulations do not comprehensively deal with this important issue.

Despite the challenges, there is an existing crypto market in India that is facilitated by peer-to-peer trading and offshore exchanges. However, this unregulated landscape poses risks and lacks official safeguards. GTRI’s recommendations underscore the importance of carefully navigating the emerging crypto landscape, emphasizing the need for a regulatory framework to manage risks while fostering innovation in the cryptocurrency sector.

The coming months will be crucial for India as it will shape its approach to cryptocurrency regulation taking into account the lessons and experiences of countries like the United States.