Investment in currency comes in various shapes and sizes, but they can be broadly whittled down to two propositions: one based on Kim Kardashian, the other on Meryl Streep. Both are well-known celebrities—one new, the other old; one a reality star, the other a talented actor. The new one can drive hype and ‘break the Internet’, the other is a benchmark for acting excellence. One thrives on Instagram and has an army to manage her social media; the other is more nuanced, uses traditional media and has proved her mettle.
Cryptocurrency is the Kardashian of the investment world; you don’t know its intrinsic value but go by the short-term perceptions of a fleeting crowd of this being a hot investment. The value of cryptocurrencies has spiralled up so high that it is recommended as an investment option. To stretch the analogy, if Kim Kardashian were to say “I am Meryl Streep” or better “I am Crypto Streep, which is Meryl and better,” would investors buy that? They normally wouldn’t but that’s happening now—not only is cryptocurrency being seen as the real currency, it’s perceived by some as even better than the real currency as its value keeps going up as more and more people buy into it. Normally, if the value of anything only goes up if more people invest (mine) in it, it is a ponzi scheme.
Several cryptocurrency exchanges sell cryptocurrency as an investment. Normally, an entity selling investment options needs to register as an investment advisor with the Securities and Exchange Board of India (SEBI). But these cryptocurrency exchanges are bypassing that legal formality of registration or compliance. SEBI is also watching from the sidelines—watching Page One articles and advertisements advising investment in cryptocurrency.
Whatever be the perception or “sentiment”, the term “cryptocurrency” itself is a misnomer. There is nothing cryptic about it nor is it a currency. The currency bit is added to give credibility to what is basically a token on a general digital ledger. Supporters of cryptocurrency would have us believe that this is the future of currency because it is about technology; technology is inevitable, its march is inexorable, it is inescapable, and India will fall behind the development curve if it ignores technology. The shysters have repeated this argument so many times that the Supreme Court and even Parliament believe that cryptocurrency should be legitimized. This while the savvy investors behind this fake currency are running circles around them. They have even been able to convince Parliament to introduce a bill to ensure that they are a legitimate investment option. The bill is pending approval and it will effectively turn Kim Kardashian into a Meryl Streep. It may not be physically possible but could be legislatively made possible.
Cryptocurrency has to be called what it is—it’s an all-out fake. It’s not even a currency. A currency is real ONLY if it is issued by the central bank. Every other currency with any first name is a fake. Any digital currency being used in India can be a real currency only if it is issued by the RBI. The RBI is issuing a digital currency of its own. One that will have intrinsic value as it will be guaranteed by the central bank as convertible into real rupees. RBI’s Central Bank Digital Currency (CBDC) will clear the funk around cryptocurrency. Which is why venture capitalists and private investors who have put money into it are trying to sell as much of it to unsuspecting retail investors before it all turns to junk. They are trying to push a bill through Parliament. They are trying to force the Supreme Court to intervene so that the regulator does not ban it. So far, they have been able to confuse enough people into believing that the fake currency is the future as it is about technology. A cryptocurrency is as much about technology as an aluminium manufacturing company is about power. Just because an aluminium company uses power to convert bauxite into aluminium! If a fake currency company uses blockchain technology, how is it about technology? Using technology does not make cryptocurrency real.
Cryptocurrency is not a legal matter for the judiciary; it is a regulatory matter that has to be decided by SEBI and RBI. The central bank decides what is a legal currency in the country, and it has already said that it is progressing with a regulatory structure to make CBDC possible. SEBI has the jurisdiction and the power to prevent all the cryptocurrency exchanges from selling this fake currency as an investment vehicle. It has chosen not to exercise its powers in spite of the confusion all this is creating. It is waiting for a scam to happen—something we saw with the collective investment schemes (CIS) in the past.
Parliament should not pass a bill that will legitimize a fake currency and will create all sorts of challenges for the economy. A fake currency creates a fake economy parallel to the real one, hiding transactions, and hiding them from taxation. Should Parliament be part of an active creation of a parallel economy, only to realize the mistake after they have passed the bill? It is the fervent hope of all right-thinking citizens that the Supreme Court does not allow itself to be persuaded that our central bank does not understand currency; that the Ministry of Finance does not understand the workings of a parallel economy; that the only ones who understand technology, currency, and their importance to an economy are a motley bunch that has been deceiving and sidestepping governments and regulators across the world
The author is CEO, Center for Innovation in Public Policy. The views expressed in this article are those of the author and do not represent the stand of this publication.