US President Donald Trump’s actions have delivered a setback to the concerted efforts to frame global regulations for crypto assets. Following up on his strange January 23 order, the US President tweeted last weekend that a crypto reserve will be made out of specific assets such as Ripple, Solana, Cardano, Bitcoin and Etherum. The world should push back on the chaos generated by Trump’s crypto preferences.
In the January Presidential order, titled ‘Strengthening American leadership in digital financial technology,’ the statement that a working group will evaluate creation of a strategic crypto stockpile had elicited much curiosity. The order revoked the previous administration’s efforts on international engagement on digital assets and brought all work relating to central bank digital currency to a halt. Strategic reserves are created for critical commodities such as crude oil to help bridge the demand-supply gap and maintain price stability. With there being no requirement to create price stability in cryptos, the purpose of this strategic reserve is unclear. The government is unlikely to build this reserve with taxpayer money, as that can lead to public backlash. There appears to be little sense in creating a reserve of assets which are highly volatile and can lose a significant part of the value in a very short period. Meanwhile, the crypto industry is not impressed by Trump’s latest salvo. The bellwether, Bitcoin, has declined almost 25 per cent since the January order. The five named cryptos have lost almost their entire gains, after an initial spike.
It is important that India and other countries continue to work jointly on this issue, despite the US taking a different path. The Biden administration was, in fact, working on a regulatory framework which would focus on consumer and investor protection, financial stability, illicit financing, financial inclusion and responsible innovation. Trump seems inclined to remove all curbs and scrutiny on investors and companies in this space. The Securities and Exchange Commission has withdrawn several investigations into crypto companies.
The work that began in the G20 summit in 2023, with the acceptance of the joint paper by IMF and Financial Stability Board on crypto currency regulation, needs to continue. While the joint paper provides the overarching regulatory framework for digital assets, it has left the finer details to the regulators in each jurisdiction. The Indian government needs to decide who will regulate cryptos — SEBI or a new regulator. The regulator should then be tasked with framing the guidelines for mining, issuances, trading and payments using cryptos. Allowing these activities to continue in a regulatory vacuum exposes investors to financial risk and has the potential to be misused for money laundering and other unlawful activities. With use of digital payments growing fast, the work on central bank digital currency should also continue in India, regardless of what the US does.