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Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,

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Speaker 1: and this is Bloomberg Crypto, a daily Bloomberg I heart podcast.

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Speaker 1: It's Friday, July eighth. It feels like every country in

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Speaker 1: the world is figuring out how they want to regulate

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Speaker 1: crypto right now, or even if they will allow the

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Speaker 1: asset class to exist at all. India has seen as

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Speaker 1: one of the fastest growing markets for crypto trading, something

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Speaker 1: which its government isn't too keen on Bloomberg reports. Sadartha

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Speaker 1: Schokla joins me today to discuss India's complicated history of

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Speaker 1: crypto regulation, why they're turning to taxes to curb speculation,

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Speaker 1: and the potential lessons for other countries. I'm so happy

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Speaker 1: today to have Saddhartha, who was my colleague based in Mumbai,

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Speaker 1: joining us on the podcast. Hi, Hi Stasen, Thank you

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Speaker 1: for having me up. Pleasure. So let's get started with

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Speaker 1: a little bit of contacts about crypto in India. Can

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Speaker 1: you say a little bit more about the size of

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Speaker 1: the market and why this is a big deal as

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Speaker 1: far as the asset class goes. Sure so in India

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Speaker 1: when it comes to crypto things actually picked up in

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Speaker 1: twenties seventeen because still then Indian users had access only

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Speaker 1: to purchasing bedcoin or ethereum, but on very few platforms.

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Speaker 1: In TV exchanges started having more tokens onto their platform.

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Speaker 1: But just a year after that, the Central Bank of

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Speaker 1: India the r b I, they issued a circle which

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Speaker 1: basically cut off all crypto startups from the country's payment

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Speaker 1: and banking network, post which there was a pretty long

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Speaker 1: winter in the Indian market. It was much harsh than

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Speaker 1: what we saw in the grouble market, but that happened,

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Speaker 1: and then in two thousand and twenty two, the new

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Speaker 1: crypto exchangers were fighting this in the Supreme Court of

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Speaker 1: India and they were able to overturn this circular. So

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Speaker 1: the headline story really caught my attention. Earlier, India to

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Speaker 1: propose prohibiting all private cryptocurrencies, that was the headline story.

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Speaker 1: A little bit later on the story crept outside India

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Speaker 1: too is said to consider allowing cryptoi trating for some investors.

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Speaker 1: What we saw in India was that there was a

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Speaker 1: lot of pent up demand for these assets, and we

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Speaker 1: also saw that a lot of VC money started flowing

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Speaker 1: in the exactly and in in that short time frame

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Speaker 1: from twenty twenty two, I would say mid of twenty

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Speaker 1: twenty one, India so its first two crypto unicorns, right,

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Speaker 1: so in exchange called coin dc x and another called

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Speaker 1: coins tored. Both of them got a billion dollar worth

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Speaker 1: of bad valuation in a very short period of time.

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Speaker 1: We also saw that with this venture capital money came

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Speaker 1: a lot of marketing and publicity. So we've seen that

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Speaker 1: happened globally, right with all crypto exchanges, whether it's crypto

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Speaker 1: dot com or for that matter, binnance. So that attracted

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Speaker 1: a huge crowd in this small and you know, decent

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Speaker 1: asset class. We saw that from twenty onwards many Indians

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Speaker 1: belonging from Tier to three, Tier three cities as well

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Speaker 1: started getting onto these platforms. They started buying crypto tokens.

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Speaker 1: And the most conservative estimate that we have of the

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Speaker 1: total market size is around close to twenty million users

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Speaker 1: in India, which is a lot compares into a lot

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Speaker 1: of markets out that's right. So a couple of things

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Speaker 1: it sounds like you're saying. So there was this winter

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Speaker 1: for several years, partly as a function of the government's

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Speaker 1: ban on crypto partly as a function of what was

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Speaker 1: happening in global markets, and then from when that ban

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Speaker 1: was overturned, we started going through the same boom bust

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Speaker 1: cycle as everywhere else, which was sort of it sounds

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Speaker 1: from what you're saying like more boom than bust with

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Speaker 1: a pretty significant markets in India. My big question is

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Speaker 1: is that market you know, I know you mentioned people

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Speaker 1: were interested in defy, but is it largely trading in

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Speaker 1: bitcoin and ether or are there other elements that you

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Speaker 1: think are specific to what's happening in India that makes

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Speaker 1: the government really concerned about risk and speculations of the

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Speaker 1: government has always been that cryptocurrencies can lead to a

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Speaker 1: flight of capital outside of India. They can be used

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Speaker 1: for money laundering and for terrorists financing, and those have

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Speaker 1: been the major reasons why crypto trading firms in India

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Speaker 1: have had an uneasy relationship with banks, the central Bank,

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Speaker 1: and the Indian government as well. Because of that, we've

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Speaker 1: seen a couple of kneja reactions as well from the

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Speaker 1: government side, Like for example, I had mentioned what happened

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Speaker 1: in eighteen So the Central back of India has always

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Speaker 1: held an opinion that they want cryptocurrencies to be banned

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Speaker 1: in India, completely banned, but you know, they never went

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Speaker 1: ahead and you know, you know, no law was made

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Speaker 1: around that. But what happened in twenty eighteen was sort

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Speaker 1: of like an indirect bank because they had not outlawed

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Speaker 1: crypto assets, but what they had done they had basically

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Speaker 1: removed crypto platforms exchanges from the Trees backing system, which

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Speaker 1: in a way made it impossible for users new users

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Speaker 1: to use the Indian repeat and buy some crypto token

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Speaker 1: so on ramping on to the crypto universe became impossible.

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Speaker 1: So the idea was, oh, yeah, you can trade it,

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Speaker 1: you just can't actually buy any exactly. But the lack

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Speaker 1: of regulatory clarity had always kept Indians at being from

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Speaker 1: cryptocurrencies and still now, we never had any regulation on

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Speaker 1: how to formulate this industry or whether we need to

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Speaker 1: like clamp down on it. Right, But something interesting happened

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Speaker 1: earlier this year in February, so the Indian government announced

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Speaker 1: how crypto transactions and income from crypto assets will be

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Speaker 1: taxed in the country. So this was actually seen as

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Speaker 1: the first step towards regulation. People had welcomed the move

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Speaker 1: right because taxing any asset or any product for that matter,

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Speaker 1: is always seen as a sign of legitimization. Right. But

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Speaker 1: once people started digging deeper into the finer details of

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Speaker 1: this new tax regime, that's when they understood that already

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Speaker 1: this might do more harm than good. So I want

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Speaker 1: to ask you some questions about that, because on the

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Speaker 1: one hand, you say, rightly, I think that you know

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Speaker 1: the there's this perception that taxation is a form of legitimization, right,

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Speaker 1: like the government's like, okay, this thing is going to

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Speaker 1: stick around. We may as well make sure that we're

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Speaker 1: getting our cut of whatever that thing is. But you

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Speaker 1: also note that actually, if you dig down into the details,

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Speaker 1: it looks like this might really put a damper on

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Speaker 1: the crypto industry. What is it about the Indian tax

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Speaker 1: that might have that effect? So I would say there

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Speaker 1: are three key highlights of the tax route. First is

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Speaker 1: that there will be a flatty tax on income from

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Speaker 1: crypto assets, so regardless of what income bracket you fall

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Speaker 1: into or how much money you made in a year.

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Speaker 1: The other is, one cannot offset any loss in crypto

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Speaker 1: assets against any other income, even from income from a

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Speaker 1: different crypto token, so there is no benefit of tax

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Speaker 1: harvesting for Indian investors. The third point is that the

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Speaker 1: government has also introduced a one person tedious or a

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Speaker 1: tax which will be deducted at source on all digital

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Speaker 1: assets transfer above a certain size. So those are the

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Speaker 1: three key highlights. That all sounds like the Indian government

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Speaker 1: saying we really don't want you in this asset class.

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Speaker 1: That's true. Like I said, we are still waiting for

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Speaker 1: formal regulations around crypto assets in India, even though a

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Speaker 1: tax regime has been announced. The government has said that

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Speaker 1: that this does not mean that crypto assets are legalized

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Speaker 1: in India. They're just saying that as a government, we

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Speaker 1: have the right, you know, tax you on this kind

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Speaker 1: of an income. So that's what we're doing, right. So,

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Speaker 1: like what happened back in this is pretty similar to

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Speaker 1: that that this is somewhat like an indirect way to

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Speaker 1: reduce crypto trading activity in the country. We'll be right

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Speaker 1: back with more up the ata's take on India's approach

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Speaker 1: to regulating crypto. If you want to treat crypto as

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Speaker 1: a sin and you want to have a high tax

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Speaker 1: on it and you want to eventually ban it, that

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Speaker 1: be specific and have that bro but keep bear in

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Speaker 1: mind that a lot of people would indulge in crypto

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Speaker 1: and indulge in these operations and in the dark net,

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Speaker 1: and a lot of these operations will go under the

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Speaker 1: supporting crypto. I'm thinking after I'm asking the government to

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Speaker 1: be clear. One of the things that I am always

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Speaker 1: interested in as it relates to crypto is the sort

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Speaker 1: of the clever ways in which people regulate without regulating,

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Speaker 1: right so, you know, in the in the in the US,

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Speaker 1: for instance, the security is in Exchange Commission is pretty

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Speaker 1: fun of what is sometimes known as regulation through litigation,

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Speaker 1: which is like we're you're we're going to make you

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Speaker 1: pay a hundred million dollars in fines until you stop

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Speaker 1: doing this thing that we don't like. But we're not

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Speaker 1: going to issue specific guidance about the thing we're seeing

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Speaker 1: in India sort of regulation through taxation. And are you

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Speaker 1: hereing from folks locally or elsewhere in Asia that other

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Speaker 1: governments or other bodies are looking to how India is

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Speaker 1: approaching this as a potential model for their own, you know,

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Speaker 1: attempts to keep crypto under control. So anya specific among

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Speaker 1: the major economies, China has already outlawed crypto cnncies. Right.

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Speaker 1: Apart from that, if you look at Singapore, they have

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Speaker 1: some what of an accommodative but strict regulatory regime, right,

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Speaker 1: and they haven't been any other country in the region

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Speaker 1: which has come out with very strict guidelines, I would say,

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Speaker 1: other than the tax structure, which as you describe it

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Speaker 1: is very, very punitive. Are there any other unique elements

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Speaker 1: of the Indian crypto market that you think folks should

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Speaker 1: know about. In India, we have mostly centralized exchanges which

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Speaker 1: have been the most dominent players, right, and they have

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Speaker 1: been the only place where people would majority of the

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Speaker 1: Indian users will go to get some exposure on crypto assets. Right.

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Speaker 1: What we've seen that in the last couple of months,

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Speaker 1: especially after the implementation of the new tax regime, volumes

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Speaker 1: have really plummeted on these platforms. Take for example, was eRx,

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Speaker 1: which is India's largest exchange by volume and its owned

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Speaker 1: by Binance. Last year, at its peak, it was doing

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Speaker 1: volumes of around half a billion dollars city right currently

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Speaker 1: that has dropped to I would say last I head checked,

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Speaker 1: it was at around fourteen million dollars. Right. So, while

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Speaker 1: the world is struggling and facing a bare market, and

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Speaker 1: we are seeing marquee crypto projects collapse in India. It's

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Speaker 1: just a bit more worse, I would say. So we

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Speaker 1: have about one more minutes left, and I guess my

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Speaker 1: main question is do you see crypto being able to

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Speaker 1: survive in India given this extremely hostile governments and regulatory

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Speaker 1: environments that is in existence right now. I think by

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Speaker 1: its very nature, crypto assets are built to be like

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Speaker 1: censorship resistant, So India is actually a great testing ground

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Speaker 1: for that thesis. And I feel that crypto as an

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Speaker 1: asset class as a technology will still continue to thrive

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Speaker 1: in India. But the risks are that a lot of

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Speaker 1: the trading and the purchase might actually go underground, or

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Speaker 1: people might just transact on peer to peer unregulated platforms,

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Speaker 1: or dy me just try to get some tokens via

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Speaker 1: D five platforms. Right, So, how do you regulate that

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Speaker 1: No later in the world has been able to figure

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Speaker 1: out how do we, you know, implement key S norms

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Speaker 1: on a DE five platform and k I S norms

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Speaker 1: are like no your customers, So the ability to make

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Speaker 1: sure that somebody has who they say they are on

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Speaker 1: the DE five platforms actually is actually who they are yeah,

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Speaker 1: I I completely agree. I do think that there's a

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Speaker 1: bit of an arms race right now with certain parts

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Speaker 1: of the crypto markets and what regulators are trying to do.

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Speaker 1: But it does sound from what you've told us that

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Speaker 1: India has figured out some very clever ways to get

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Speaker 1: what they want or at least stop what they don't

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Speaker 1: want in the meantime. True, one of the consequence of

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Speaker 1: this has been that a lot of Indian businesses and

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Speaker 1: entrepreneurs have moved to jurisdictions which have more favorable and

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Speaker 1: accommodating the literary environment. So a lot of them have

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Speaker 1: actually moved to the Way. Some of the biggest names

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Speaker 1: in India, like for example, Polygon, which is a scaling

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Speaker 1: solution built on top of ethium. The entire team, the founders,

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Speaker 1: they have moved to Dubai. And as we see in

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Speaker 1: this space, which is very community driven, wherever the best

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Speaker 1: projects land up, that jurisdiction ends up attracting the best

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Speaker 1: stand as well. Right. So that's why in India there's

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Speaker 1: this running joe, especially in the crypto community, where people

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Speaker 1: say that the Way is the best city in India

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Speaker 1: because a lot of people move to the Way, and

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Speaker 1: also because of its proximity to the country, right, Like,

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Speaker 1: for example, one crypto startup entrepreneur was telling me that

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Speaker 1: it costs less to travel from the way to Delhi

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Speaker 1: than what it costs from traveling from Delhi to Bangalore.

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Speaker 1: So it's pretty nearby as well. So that flight of

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Speaker 1: talent as well as you know, capital as well is

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Speaker 1: something which is a major negative for the economy as well,

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Speaker 1: because at the end of the day, if Indian investors

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Speaker 1: and traders start moving their games in capitals onto foreign exchanges, right,

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Speaker 1: that means that there's a loss of revenue prospective tax

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Speaker 1: revenue for the Indian government as well. Yeah, a tricky,

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Speaker 1: a tricky balance. Well, thank you very much for that said.

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Speaker 1: I really appreciate you taking the time. Thanks. You can

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Speaker 1: find more of thez Darthur Schuklas reporting on the Bloomberg

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Speaker 1: terminal on Bloomberg dot com and you'll find him on Twitter.

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Speaker 1: He's at sid coins. That's s I D C O

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Speaker 1: I N S. On the next episode of Bloomberg Crypto.

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Speaker 1: John Crypto burst onto the crypto scene less than a

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Speaker 1: year ago with the appointments of a former intern named

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Speaker 1: Canal Korea as its founding president. Within just a few months,

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Speaker 1: John Crypto has found itself spending hundreds of millions of dollars,

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Speaker 1: bailing out market participants because of a major hack and

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Speaker 1: having to navigate the collapse of the terra USD stable coin.

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Speaker 1: Undeterred by his critics, Karia believes that the market's current

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Speaker 1: volatility is the perfect time to double down. You'll hear

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Speaker 1: from Bloomberg reporters Katherine Doherty and Uh Eyang. They went

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Speaker 1: to Chicago to visit Jump's headquarters, and they'll tell us

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Speaker 1: all about what's next for the firm. I'm Stacy Marie Ishmael,

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Speaker 1: and this is Bloomberg Crypto, a daily podcast from Bloomberg

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Speaker 1: and I Heart Radio. For more shows from I Heart Radio,

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Speaker 1: visit the I Heart Radio app, Apple Podcasts, or wherever

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Speaker 1: you get your podcasts. Email your questions, comments or suggestions

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Speaker 1: for the show to Crypto at Bloomberg dot net and

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Speaker 1: you'll find us on Twitter at Crypto. The supervising producer

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Speaker 1: of this episode is Vicky Vergalina. Our producer is Mohammed Farouk.

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Speaker 1: Associate producer is Thy Butler. Associate producer is zan Ab

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Speaker 1: Sudiki Desta wonder At is our engineer. Original music by

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Speaker 1: Leo Sidrin. The other four above had impressed anything bad