Could India Follow the US in Holding Bitcoin as a Strategic Asset? The Pros and Cons
In a significant move, US President Donald Trump has signed an Executive Order creating a Strategic Bitcoin Reserve, alongside a United States Digital Asset Stockpile to manage its other digital assets. This development has sparked interesting discussions about the potential of India following suit.
The order aims to create a strategic reserve by confiscating virtual assets seized by US government agencies as part of criminal or civil asset forfeiture proceedings. The reserve will consist of Bitcoin (BTC) and Ethereum (ETH), with the goal of promoting national security, economic growth, and financial stability.
The Pros of Holding Bitcoin as a Strategic Asset
Santosh Panda, Co-Founder of Foundership, a venture capital firm focused on Web3 & AI startups, advocates for India to have its own strategic crypto reserve. According to Panda, having a strategic reserve would allow India to be part of an ecosystem and included in the future direction of this industry.
"Once you have a strategic reserve, you're part of an ecosystem," said Panda. "You're going to also be included in the future direction of this industry." He emphasized that such a reserve could open up a new paradigm of thinking for India's position on cryptocurrencies, allowing it to explore possibilities and have a say in the digital asset economy.
The Cons of Holding Bitcoin as a Strategic Asset
Srinath Sridharan, Corporate Advisor and Policy Researcher, raises concerns about the potential risks associated with holding Bitcoin as a strategic asset. He argues that cryptocurrencies remain highly volatile, prone to hacking, and lack intrinsic value or stability required for sovereign reserves.
"Cryptocurrencies remain highly volatile, prone to hacking, and lack the intrinsic value or stability required for sovereign reserves," said Sridharan. "Unlike gold or foreign exchange, they operate beyond regulatory control, making them a liability rather than a strategic asset."
Risks and Challenges
Sridharan also questioned the underlying value of cryptocurrencies, arguing that their value is entirely arbitrary and based on scarcity value.
"The concerns of financial regulators are that when you're linking it to national currencies, there must be an exchange rate applicable and a basis for valuations of the underlying asset," said Sridharan. "On what basis will you agree on it?"
A Regulatory Framework
Sridharan suggested that India needs a clear regulatory framework for Virtual Digital Assets (VDAs) to eliminate current grey areas.
"India needs a clear regulatory framework for VDAs, and it may be feasible to have it under SEBI's purview," said Sridharan. "This would provide oversight, investor protection, and a structured approach to dealing with digital assets."
The Way Forward
While the US has taken a significant step in creating a strategic Bitcoin reserve, India must carefully weigh its options before making a decision.
"Until global regulatory frameworks evolve and systemic risks are addressed and collectively regulated, India has no reason to experiment with the foundations of its economy," said Sridharan.
However, for some stakeholders, such as Panda, holding Bitcoin as a strategic asset could be an opportunity for growth and exploration.
The Implications
Trump's announcement has led to buzz among stakeholders in the industry, with many wondering if India will follow suit.
As the Indian government and RBI reconsider their policy stances on cryptocurrencies, it remains to be seen whether they will adopt a similar approach to managing digital assets.
The Bottom Line
The decision by India to hold Bitcoin as a strategic asset is far from clear-cut. While there are potential benefits, such as promoting economic growth and financial stability, there are also significant risks and challenges that need to be addressed.
Only time will tell whether India will follow the US lead in creating a strategic Bitcoin reserve, but one thing is certain - the debate on cryptocurrencies and their role in the economy will continue to unfold.