Sources familiar with the discussions told ET that concerns were being expressed about the number of cryptocurrency exchanges operating from India and how the prices of the same cryptocurrencies tended to differ at the same time by one. platform to another, creating arbitrage opportunities.

The government has held several meetings over the past few days to discuss the issues with crypto stakeholders.

Prime Minister Narendra Modi held a meeting with regulators on Saturday, including the Reserve Bank of India (RBI).

On Monday, Jayant Sinha, chairman of a parliamentary committee, met with several cryptocurrency exchanges and associations.

The government had also previously expressed concerns about the transparency of cryptocurrency advertisements.

“One wonders how a regulator will be able to monitor a large number of exchanges at a time when there is a huge price difference and an opportunity for price arbitrage,” a person familiar with development told ET.

Exchanges responding to government concerns claim that due to the nature of blockchain technology and the large number of crypto assets, it can be difficult to restrict the number of exchanges and this would only create more problems.

However, the exchanges are pushing the government to create or support a regulatory sandbox to check new regulations first, perhaps at international financial service centers.

“Rather than restricting the number of exchanges, price arbitrage scenarios can be resolved by regulating the price and supply of crypto assets on any Indian platform, in addition to this interoperability between Indian platforms through technology-enabled liquidity APIs (application program interface) can also solve arbitrage problems. There is a need to introduce a regulatory sandbox for the crypto industry, “a said Shivam Thakral, CEO of BuyUcoin, a cryptocurrency exchange.

An API is basically a programming interface through which different cryptocurrency platforms could ‘talk’ to each other and even regulate prices or other issues.

Industry trackers say price arbitrage is the essence of cryptocurrency trading.

“Price arbitrage can be exploited between exchanges within a country and between different countries and, since it is a global phenomenon and regulations and laws around the world are still evolving, there is no There is nothing illegal about such price arbitrage. These price gaps are closed when participants trade on different platforms, which leads to prices between different platforms being granted to each other. It’s an automatic price correction mechanism, ”said Kumar Gaurav, founder and CEO of Cashaa, an online banking platform for crypto assets.

As of yet, the total number of exchanges where cryptocurrencies are traded is unclear. There could be at least 25 to 30 known exchanges across the country. The RBI had even raised concerns about how the exchanges regulate buy and sell orders to arrive at a price.

Insiders tell ET that the government may come up with a broad framework in the first phase on cryptocurrencies. “The government cannot ban cryptocurrencies because of the Supreme Court order. The only way around this problem would be to first come up with a broad regulatory framework that basically requires cryptocurrency exchanges to follow certain standards and hold them accountable for any future fraud or other issues, ”said a person close to the development.

The government could also come up with the general framework through an ordinance as early as December, said another person familiar with developments.

The central bank pushed the government to ban cryptocurrencies altogether in India. The RBI had asked banks to stop processing cryptocurrency exchanges in 2018, but the circular was overturned in 2020 by the Supreme Court.

For their part, the cryptocurrency exchanges lobbied for either the Securities and Exchange Board of India (Sebi) or the International Financial Services Centers Authority (IFSCA) as regulator. According to a person close to development, the IFSCA in meetings with the government has distanced itself from the issue.

The government is looking to define cryptocurrencies in the new bill which also proposes to compartmentalize virtual currencies based on their use cases, ET reported for the first time on September 3. Cryptocurrencies will be treated as an asset / commodity for all purposes including taxation and as per user case – payments, investment or public service, people close to development said earlier.