This is a story of three articles that were published last week.

The first one was written by Ashish Singhal, co-founder and CEO of Coinswitch, one of India’s biggest crypto exchanges. It was published as an op-ed in the Financial Express, titled, ‘FTX fiasco warns India of the risks of offshore exchanges’. Singhal’s argument is basically something like this:

1. FTX did some very bad things. 
2. FTX was a shady, unregulated company in the Bahamas.
3. Transactions on Indian exchanges are taxed at enormous rates.
4. So Indian investors go abroad and invest their money at these shady exchanges.
5. We need to protect Indian investors. 
6. So please regulate us
7. Oh, also please reduce taxes so Indians can invest in Indian exchanges

Regardless of the argument, you can’t help but marvel at the audacity. Coinswitch is also an exchange, just like FTX, and even has the same investor, Sequoia Capital (who published that now deleted 13,000-word glowing profile on Sam Bankman-Fried, founder and CEO of FTX). And now, Coinswitch’s CEO is being the voice of concern. He writes: “India needs to urgently address the gaps and avoid investors from losing money on crypto companies over which the government has little or no jurisdiction. That is the biggest lesson for regulators from the FTX fiasco.”

Touching.

The second article came a few days later. Again, interestingly, in the Financial Express. And this one was written by Rameesh Kailasam and Madhabi Sarkar, who represent an industry group called Indiatech.org. Until a few months ago, crypto companies were a part of the Internet and Mobile Association of India (IAMAI), the main industry lobby for tech companies in the country. Then came a fallout, and depending on who you ask, the crypto companies were either booted out or left voluntarily. Right now, India’s four major crypto exchanges are a part of Indiatech.org—Coinswitch, Zebpay, WazirX, and CoinDCX. 

Kailasm and Sarkar also make an argument for crypto, but from the other direction. Instead of warning against the downside of inaction, they present the merits and upsides of action. In this article, titled, “India’s opportunity to lead crypto regulation”, they describe all the amazing things that will happen with crypto regulation. Like how crypto can contribute “more than US$1 trillion to the GDP over the next decade”, and that web3 regulation can help “many of the 20+ million employed in the gig economy to explore their services and work opportunities”, and so on and on. Just slap on a “Proud moment for all Indians” at the top, add some emojis, and it’ll make for a fantastic WhatsApp forward. 

But there’s one more thing you need to know. 

Last week, India assumed the presidency of the G-20 group. Basically, it’s a group of the world’s biggest economies and the European Union. It’s a fairly influential bloc, and it sets the broad direction and tries to get consensus for multiple global issues between some of the most powerful countries in the world. 

This year, crypto regulation is one of the things on the agenda before the G-20.

India’s crypto lobby published two pieces last week. The timing is not an accident. In both of them, they specifically call attention to India’s new status as the G-20 president, and beseech it to do the right thing and create a global consensus around crypto regulation. 

The G-20 President steers the G-20 agenda items along two parallel tracks. One of them is the Finance Track, which is driven by Finance Ministers and Central Bank Governors of the member nations. This is the group of people who’ll meet to decide crypto’s global fate. One of these members is the European Union, which holds significant power and sway.

Which brings us to the third article I mentioned at the beginning.

It’s an article titled, ‘Bitcoin’s last stand’. 

Here’s an excerpt.

The value of bitcoin peaked at USD 69,000 in November 2021 before falling to USD 17,000 by mid-June 2022. Since then, the value has fluctuated around USD 20,000. For bitcoin proponents, the seeming stabilization signals a breather on the way to new heights. 

More likely, however, it is an artificially induced last gasp before the road to irrelevance – and this was already foreseeable before FTX went bust and sent the bitcoin price to well below USD16,000.

It goes on to say. 

The current regulation of cryptocurrencies is partly shaped by misconceptions. The belief that space must be given to innovation at all costs stubbornly persists. Since Bitcoin is based on a new technology - DLT / Blockchain - it would have a high transformation potential. Firstly, these technologies have so far created limited value for society - no matter how great the expectations for the future. Secondly, the use of a promising technology is not a sufficient condition for an added value of a product based on it.

And finally, the bombshell. 

Since Bitcoin appears to be neither suitable as a payment system nor as a form of investment, it should be treated as neither in regulatory terms and thus should not be legitimised. 

Similarly, the financial industry should be wary of the long-term damage of promoting Bitcoin investments - despite short-term profits they could make (even without their skin in the game). The negative impact on customer relations and the reputational damage to the entire industry could be enormous once Bitcoin investors will have made further losses.

It’s a strongly worded, powerful statement. In no uncertain terms, it makes the case that Bitcoin is nothing more than a speculative tool, is environmentally destructive, and deserves to be banned.

You’re probably wondering where you can read this article in full. 

It’s on the website of the European Central Bank.

Written by their senior officials.

At some level, I think India’s crypto companies don’t fully understand the priorities and motivations of the people at the highest levels of power in the traditional financial system. Most of them clamour for more regulation, believing that regulation is a form of acceptance. 

I’ve written about how crypto companies want regulation, but the problem is that nobody knows how to regulate them because they are both a commodity and a currency. I’ve also written how crypto is cursed and stuck in this strange limbo, just like clocks in Switzerland, waiting for everyone to catch up. And in this period, the squeeze has been applied slowly on India’s crypto exchanges—there are restrictions that prevent them from running ads, or to use payment mechanisms like UPI, and more recently, steep taxes levied on transactions and gains. 

And this was before the crypto crash and the collapse of FTX, driven by mismanagement and fraud. 

As I wrote earlier, crypto companies are hoping that regulations give them legitimacy and space to operate. If lines are drawn, then at least it’s clear to them what lines cannot be crossed, and more importantly, it’s harder for companies who cross these boundaries to operate and compete with them. This is what crypto companies want. They are actively demanding regulation. 

Well, the problem with this logic is that crypto companies are already being regulated. 

Through one of the most effective forms of regulation—taxation. 

Tax has a dual purpose in public policy. It’s to create revenue for the state, and to control the supply and demand of goods in society. If you want to incentivise green energy, you regulate fossil fuels by levying a carbon tax. If you want to stimulate the local economy, you place an import duty—a form of tax. Want fewer people to smoke cigarettes? Raise taxes by a ridiculous amount. All of this is regulation through taxation. 

And all of this places crypto companies in a delicate position. They wanted regulation. They got it. But now they want a different kind of regulation. And a reduction in current regulation, i.e., taxes. 

From the perspective of central bankers, it’s hard to see why they’d want to do this.

Crypto companies have a misunderstanding. They argue that a global regulatory consensus is needed to protect consumers. I think central bankers have a bigger priority. They want a global regulatory consensus to protect themselves. 

I’ll explain this point using a recent example.

BlockFi is a crypto company that helps consumers buy, sell, and trade crypto. Unlike FTX, which was based in the Bahamas, BlockFi was located and registered in the United States. In a short period of time, BlockFi became a unicorn and skyrocketed. Sometime last year, like all fintech companies, BlockFi decided to start lending services using crypto. It didn’t have the right registration for this, but hey, crypto companies don’t see themselves as traditional finance, so it probably believed that the regular rules didn’t apply.

When the Securities and Exchange Commission (SEC) found out, it swooped in and fined BlockFi a staggering US$100 million dollars. In its order, SEC said that BlockFi made a false and misleading statement for over two years on its website concerning the level of risk in its loan portfolio and lending activity. It was one of the largest fines in recent history. 

That was in February.

Here’s what happened last week.

Here’s the crazy part. BlockFi has a list of creditors to whom it owes money. And the SEC is right at the top of that list. BlockFi owes the SEC US$30 million. And from a priority standpoint, the SEC is ahead of BlockFi’s own customers. In fact, some believe that customers will probably never get repaid.

Tell me again how crypto regulation intended to protect consumers is going to work? 

A lot of people expect and believe that G20 is the place where crypto will be saved. They hope that a global consensus will finally create a framework for them to exist and thrive. 

Perhaps what’s more likely is that G20 may be where crypto will finally get reined in, and be taken to a place where it’s isolated and cut-off from the rest of the financial system. It’s a place filled with a long period of darkness, from which it may never fully recover.