Wait For Regulatory Clarity, SEBI Advises Mutual Funds To Hold Off Crypto Investments

Indian Market Regulator SEBI issued an advisory to domestic mutual funds, advising them to avoid investing in mutual funds for the time being. The advisory cited a lack of regulatory clarity from the government and a lack of a proper regulatory framework. 

SEBI Chairman Ajay Tyagi justified the advisory stating that unless the government provides some regulatory clarity, it is not ideal to promote investing in crypto assets or crypto-related companies. 

Legislation For Cryptocurrency Drags On 

SEBI’s statement comes when the government is still considering discussions related to crypto legislation in the country. The cryptocurrency bill was expected to be taken up during the winter session of parliament but has been deferred, with the winter session concluding last week. 

While the government has stated that it has deferred the bill so that more comprehensive consultations are possible, it also gives the impression that the government is dragging its feet regarding crypto, especially in a country that has a huge chunk of its population investing in cryptocurrencies. 

NFO Plans On Hold 

The SEBI Chairman also made a reference to Invesco, which was planning to launch a blockchain mutual fund. Since November, Invesco had put these plans on ice, preferring to take a wait and watch approach regarding regulations. The firm was planning on launching the Invesco CoinShares Global Blockchain ETF Fund. 

The reference to Invesco was clear when the SEBI Chairman stated that if domestic mutual funds seek an NFO permission from SEBI, it would advise against any crypto investments, citing, of course, a lack of regulatory clarity. 

RBI Weighs In 

The RBI also shared its views regarding CBDCs and introducing them in a very basic form, enabling the bank to test them comprehensively. It said in a statement talking about the Indian banking sector. 

“Given its dynamic impact on macroeconomic policy making, it is necessary to adopt basic models initially, and test comprehensively so that they have minimal impact on monetary policy and the banking system.”

Although cryptocurrency trading is not illegal, and no law prohibits it, it does not come under any regulatory purview in India. The cryptocurrency bill was expected to outline a framework for the creation of an official digital currency by the RBI while also allowing for exceptions to promote the underlying technology of cryptocurrencies. 

Crypto Bill Deferred 

The Indian Government had also failed to take up the crypto bill during the winter session of parliament. The delay leaves the legal status of cryptocurrencies and regulatory framework in a cloud of uncertainty, with investors eagerly anticipating a favorable bill. The Indian government stated that it requires further consultations with all stakeholders involved before taking up the cryptocurrency bill, raising hopes that there will not be an outright ban on crypto. 

Meanwhile, the IMF’s chief economist, Gita Gopinath, speaking at an event organized by the National Council of Applied Economic Research, urged India and other emerging economies to create an accommodating policy around cryptocurrencies. 

Do Regulators And Governments Understand Crypto? 

Governments and their regulators are also struggling to come to terms with the complexities and intricacies of the crypto space, failing to keep up with the ever-evolving tech applied in the crypto world. The advent of NFTs, Stablecoins, DeFi, and play-to-earn seems to have only added to their confusion. 

While regulators and governments are continuously trying to warn citizens about the dangers of crypto, their arguments fail to cut any ice with crypto investors growing tired of the rinse and repeat argument of volatility, lack of regulation, money laundering, and lack of protection for the investor, often failing to realize that money laundering and volatility can also occur in traditional financial markets. The onus is on governments to understand crypto to stay at par with the evolving markets and understand it better.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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