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Cryptocurrency – A Cautionary Tale for India

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Recent Events in the Crypto-world and a Need for Regulatory Oversight

– Subhojit Shome (subhojit@vinodkothari.com)

Introduction

There are two recent events in the world of crypto that warranted this article – the first one, in order of chronology, fundamentally altered the way that a blockchain (the underlying ledger) for cryptocurrency validates transactions while the second exposed how a cryptocurrency, without underlying value, can be used to window dress a balance sheet and lure in investors.

The second incident, of course, refers to the FTX debacle that has received global media coverage and continues to grab headlines. The first event, Ethereum moving to ‘proof of stake’ consensus mechanism, however, may be a more obscure event to the public eye and likely to have caught the attention of only the hardcore crypto enthusiast, fintech departments of financial institutions and the financial stability divisions of financial market regulators and ministries.

This article, to all intents and purposes, is a ‘cautionary tale’ where we use these two events to explore how cryptocurrency, whether deliberately or inadvertently, may build a house of cards and there is an urgent imperative that regulators look beyond PML/ CFT issues, the ‘usual suspects’ when it comes to crypto, and delve into issues surrounding investor protection and market surveillance.

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Recent Trends in Crypto-Industry: India & Abroad

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-Megha Mittal

(mittal@vinodkothari.com)

“Opportunity amidst tragedy” would likely be the most suitable phrase to summarise the journey of cryptos during the Global Pandemic- with disruption taking a toll on people and economies, and physical proximities massively restrictred, cryptos have outshone traditional assets, by virtue of its inherent features- easy liquidity, access and digitalisation.

Further, as countries around the globe attempt to stimulate their economies by opening floodgates of liquid funds, the ‘digital natives’ have and are expected to increasingly venture into adventure-some investments- think, cryptos. And while such adventurous investing may be short-lived, the results may infact have a long-lasting impact- it is this expected impact that has sets the ‘bull’ stage for cryptos in times to come.

In this brief note, we cover the recent highlights and developments in the crypto-industry, also discussing developments in the relatively new concepts of stablecoins, crypto-lending.

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