Consider regulatory sandbox approach to deal with crypto product issues: GTRI

New Delhi: India should consider a regulatory sandbox approach to deal with issues related to crypto products and services, economic think tank GTRI said in its report on Sunday.

Regulatory sandbox usually refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may (or may not) permit certain relaxations for the limited purpose of the testing.

The Global Trade Research Initiative (GTRI) said that in the light of crypto's acceptance in the regular financial system in the US, it remains to be seen how India's crypto policy evolves in coming months.

With the new US action, with ramifications on global capital flows, price of gold, foreign trade, it may not be possible to live with no regulation, it said.

"India may consider adopting regulatory sandbox approaches, allowing for controlled testing of innovative crypto-related products and services. It may need to balance innovation with risk management and adapt advancements in blockchain technology," the report said.

It added that any approach must factor the core issue that the anonymity of crypto currencies can be exploited for illicit activities like money laundering or financing criminal organizations.

The US regulation so far does not deal with this core issue, the report said.

"Despite these uncertainties, a crypto market exists in India through peer-to-peer trading and offshore exchanges. However, investors face risks due to lack of legal safeguards," GTRI Co-Founder Ajay Srivastava said.

He said that the US has allowed investments in bitcoins through its stock exchanges and this signifies crypto currency's integration into traditional finance and brings them at par with stocks and bonds.

On January 10, the United States Securities and Exchange Commission (SEC) approved 11 applications for spot Bitcoin Exchange-Traded Funds (ETFs), the report said.

It also said that allowing free trading of Bitcoin through stock markets could spread its volatility to the entire stock market.

"The unpredictable price changes of Bitcoin could affect a larger number of investors, including those who might not be fully aware of or prepared for the inherent risks of crypto currency investments," it said.