Price Arbitrage a New Worry as Several Crypto Platforms Crop Up
Govt said to have held many meetings over the last few days with stakeholders to thrash out issues
A new point of contention is emerging involving the government, regulators and cryptocurrency exchanges on the number of platforms — and the possibility of price arbitrage. Sources close to the discussions told ET that concerns are being raised around the number of cryptocurrency exchanges operating out of India and how prices of the same cryptocurrencies tend to differ at the same time across platforms creating arbitrage opportunities. The government has held several meetings over the last few days thrashing out issues with the crypto stakeholders. PM Modi on Saturday met with regulators including the RBI. On Monday, Jayant Sinha, chairman of a parliamentary committee, met several cryptocurrency exchanges and associations. The government had earlier also raised concerns over transparency in cryptocurrency advertisements.
“There is a concern how any 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 a price arbitrage,” a person close to the development told ET.
Exchanges responding to the government concerns claim that due to the nature of blockchain technology and the sheer number of crypto assets it may be tough to restrict the number of exchanges and it would only create more issues. However, exchanges are pushing that the government create or support a regulatory sandbox to check the new regulations first, maybe in international financial services centres. “Rather than restricting the number of exchanges, price arbitrage scenarios can be addressed by regulating the prices and supply of crypto assets across any Indian platform, besides this interoperability between Indian platforms through tech-enabled liquidity APIs (application programme interface) can also solve the arbitrage problems. There is a need for introducing a regulatory sandbox for the crypto industry,” said Shivam Thakral, CEO of BuyUcoin, a cryptocurrency exchange. An API is essentially a programming interface through which different cryptocurrency platforms could “talk” to each other and even regulate prices or other issues. Industry trackers say that price arbitrage is the very essence of cryptocurrency trading.
“Price arbitrage can be taken advantage of between exchanges within a country and in between different countries and since this is a global phenomenon and regulations and laws around the world are still evolving, there is nothing illegal about such price arbitrages. These price gaps get filled when participants’ trade across different platforms and that leads to prices between different platforms tuned into each other. It is an auto-correcting mechanism of prices,” said Kumar Gaurav, founder & CEO, Cashaa, an online banking platform for crypto assets.