Cryptocurrencies under the lens of SEBI

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The capital market regulator Securities and Exchange Board of India (SEBI) is planning to bring Initial Coin Offerings (ICO) under its existing legal framework. It is mulling whether an ICO can be regulated under the existing legal framework or certain amendments would be required in case the government wants the capital market watchdog to be the regulatory authority for such issuances.

Cryptocurrencies like bitcoin, ethereum, and such offerings have been under government radar for a long time. SEBI is examining whether regulation possible under current laws or fresh powers needed. Discussions were held between various regulatory bodies including SEBI and Reserve Bank of India (RBI) to regulate cryptocurrencies. Though these currencies are neither ‘commodities derivatives’ nor ‘securities’ under Securities Contracts (Regulation) Act, 1956, the RBI has a view that these instruments are securities and so SEBI should be regulating it.

In recent times, the popularity of cryptocurrencies has increased rapidly and entities are looking at raising funds through Initial Coin Offerings (ICO) which is an unregulated means of crowdfunding for the project via the use of cryptocurrency such as Bitcoin, Ethereum, Monero, DASH, Litecoin, Z-cash etc. Unlike IPO, which is governed by SEBI regulations, it is not being regulated by the government as no regulations are imposed yet for this kind of crowdsourcing in India. So, it an offer where the right of ownership or royalties of the project is offered to investors in form of digital coins in exchange for legal tender or other cryptocurrencies. ICO is mostly used to raise funds by start-up firms dealing in blockchain technology and virtual currencies.

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A source added that “While it is a bit early to say that SEBI wants to regulate cryptocurrencies and ICOs, it is true that work is being done on this subject so that it has something concrete and specific to present to the government.

 

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