India’s cryptocurrency investors are staring at a new set of regulations that may stifle the trading and existence of global cryptocurrencies in the country. The government plans to introduce a bill — The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 — in Parliament to ban companies and individuals from trading in cryptocurrencies. Top experts are of the view that the government should shed apprehensions about cryptocurrency and embrace it.
Cryptocurrency is digital money stored in a digital wallet, either online, on a computer or other hardware. Cryptocurrency can be directly transferred online without a go-between like a bank. Bitcoin and Ether are well-known cryptocurrencies, better termed crypto assets.
With ever increasing participation of institutionalised firms and businesses, Bitcoin is emerging as a store of value while Ethereum is emerging as the technology powerhouse around the world. In coming years, cryptocurrency will certainly get closer to going mainstream with a high percentage of retail investors and first-timers entering the market.
Bitcoin has been around for over a decade. It has survived two global recessions. Other than Bitcoin, there are over 8,400 cryptocurrencies available, and counting.
On Wednesday, Reserve Bank of India (RBI) Governor Shaktikanta Das said cryptocurrencies could have an adverse effect on financial stability, thus impacting the economy. His comment comes at a time when the value of Bitcoin, the highest-valued cryptocurrency, has crossed $50,000.
The Indian government has on many occasions in the past expressed concern about digital currencies, claiming they can be used to launder large quantities of money and for terror-funding purposes.
The proposed regulations
In the past two months, Indian banks have started pulling the plug on customers investing and trading in crypto assets amid growing uncertainty about a ban on cryptocurrency. Sources say major private banks like HDFC Bank, HSBC, Citibank, ICICI Bank and Axis Bank have already started questioning their account holders on cryptocurrency-related transactions.
The government recently said that it plans to introduce a law banning trade in all cryptocurrencies except for those issued by the government itself.
As per the Lok Sabha schedule, The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is slated for introduction, consideration and passing in this Parliament session. The law is intended to:
A. Create a facilitative framework for an official digital currency issued by the RBI
B. To “prohibit all private cryptocurrencies in India”
But certain exceptions will be permitted “to promote the underlying technology.” There is no clarity yet on a possible government-backed digital currency being introduced as the details of the bill are not yet known.
Some analysts hope that the government will not go in for an outright ban.
According to the Minister of State for Finance and Corporate Affairs Anurag Thakur’s statement in Parliament, the bill is drawing upon the Garg Committee’s IMC report titled “Banning of Cryptocurrency and regulation of official digital currency” in 2019. The bill is now called “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”.
Thakur also added that the intention of the bill was to regulate crypto. It remains to be seen if an actual ban is called for.
Acceptance of cryptocurrency in India
While the acceptance of cryptocurrencies is growing thanks to the acceptance of the same by firms like Tesla, MasterCard, PayPal, MicroStrategy, etc, it remains to be seen as to what line of action New Delhi will take in regulating the cryptocurrency market.
Industry experts have opined that they expect the government to discuss the new bills with industry participants and not just amongst lawmakers to understand the ground realities of crypto before going ahead with any bill around this technology.
Unfortunately, India hasn’t yet been able to create deep expertise in crypto. Blockchain is still a very nascent technology, and the Indian government needs to involve its technology firms and talents to better understand the platform.
A blockchain is an open record that shows cryptocurrency transactions, which can include amounts involved.
Finance Minister Nirmala Sitharaman had said in the Rajya Sabha that a high-level Inter-Ministerial Committee will be constituted under the chairmanship of a secretary to study the usage and issues related to virtual currencies.
India, unlike the US and Europe, has a lower level of institutional participation in cryptocurrency, primarily due to the uncertainty of its regulation. Banks and businesses would need certain levels of regulatory policies to be in place, and offering clarity, before participating in dealing with these assets.
Bought some Dogecoin for lil X, so he can be a toddler hodler
— Elon Musk (@elonmusk) February 10, 2021
What do global cryptocurrency experts say
Speaking exclusively to India Today, Neeraj Agrawal, part of Coin Center which is a leading global non-profit org focused on the policy issues facing cryptocurrencies based in Washington, D.C. said it would be a shame for India to shut itself off from a global network. “Doing so would be akin to shutting itself off from the internet in its early days. This strikes me as a massive competitive disadvantage on the world stage,” he said.
He further added that “India trying to ban bitcoin is a huge mistake. It won’t even really work but will hamstring legitimate users. When they inevitably reverse course, they’ll be way behind.”
As part of Coin Center, they sent a letter to the Indian government, urging it to reconsider any possible bans that they may impose on cryptocurrencies. The letter focuses on six principles that must be at the heart of successful approaches to government regulation.
1. Understanding who and what can be the subject of regulation
2. Clearly articulating the goals of a cryptocurrency regulatory policy
3. Only regulating persons with “control” over consumers’ cryptocurrency
4. Cooperating with businesses to preserve visibility
5. Treating all cryptocurrencies equally
6. Ensuring that regulatory requirements are reasonable
Balaji S. Srinivasan, the former CTO of Coinbase and an angel investor, spoke exclusively to India Today on the possible cryptocurrency regulations being brought in by the Indian government.
When asked about India’s supposed plan to create a framework for an official digital currency to be issued by RBI and at the same time prohibit all private cryptocurrencies, he said: “India should create a digital rupee, but it should also buy Bitcoin and create a crypto version of ‘IndiaStack’. It’s like the decision between FERA vs FEMA — India made the right decision by choosing the more open system.”
Calling cryptocurrencies as the “financial internet”, Balaji compares cryptocurrencies to the internet being used to digitise books, movies, and music and that the financial internet is now digitising stocks, bonds, currencies, and commodities.
Talking about the opportunities at hand if India embraces the crypto world, he added that “Indians are strong in computer science and finance — and would do as well on the financial internet as the original internet — they just need a chance to shine.”
Balaji concluded: “India has missed out on much of the first trillion dollars of cryptocurrency because of the 2018 ban. The sector would have been compounding in India over the past few years. But it’s not too late to change course.”
Implications of a possible ban of cryptocurrency
Cryptocurrency experts feel that a ban of cryptocurrency in India may end up creating a situation where the value of the tokens and coins lose their value locally, owing to investors being unable to sell their assets using local cryptocurrency exchanges and hence may resort to transferring their assets offshore or to foreign exchanges. Alternatively, this may also see the rise of a black market leading to more logistical issues in terms of tracing and tracking these illegal transactions.
Overnight ban on cryptocurrencies may cost a huge loss of capital in the country. Available data suggests that startups centred around cryptocurrency have raised over $60 million dollars thanks to investments from foreign firms.
Nischal Shetty, the CEO of one of India’s leading investment platforms WazirX, recently commented that if the upcoming bill proposes a complete ban on cryptocurrency, the government may have to come up with a path to help over seven million people in India who currently hold assets worth over $1 billion. The government cannot erase wealth of such a large section of people in India as it would likely lead to an economic crisis in the country, he had said.
Announcing a regulatory framework will allow the Indian government to keep a close watch and let the industry thrive in accordance with the guidelines. A complete ban may deprive the country of adopting and embracing the technology and opportunities associated with the cryptocurrency market.
Most of the developed economies across the globe are working towards regulating cryptocurrencies in the hope of leveraging on parts of innovation that comes along with some of these technologies thereby becoming fruitful.
India can expect big incentives by regulating cryptocurrency if they can position themselves strategically between China and the US. Addressing the issue by having constructive dialogues with all the stakeholders can help create sustainable regulations, address government’s concerns, and promote exponential growth.
(The writer is a Singapore-based Open-Source Intelligence analyst)