Last year in December, Sunil Nair, a 59-year-old self-employed tech consultant based in the southern Indian city of Coimbatore, decided to dip into his savings and invest in Bitcoin, Ethereum, and EOS cryptocurrency, lured by the global surge in prices. Barely three months later, he yanked his money out, fearing a possible government ban on cryptocurrencies.
A veteran investor, Nair knows the promise of rich rewards often entails high risks, but he became jittery about his crypto stakes as news broke that India’s Parliament was weighing new legislation on crypto.
“I have no plans to return [to crypto] immediately,” says Nair, who barely broke even on his investment. “Maybe I will in one or two years. I do believe that cryptocurrency is here to stay, and the government has to find a way to deal with it.”
There are over 15 million cryptocurrency investors in India and five prominent exchanges in the country, with a daily trading volume of $350 million to $500 million, according to the Internet and Mobile Association of India (IAMAI). All of them are facing an uncertain future as Indian authorities deliver mixed messages on how federal regulators may govern the crypto market.
Three years ago, the Reserve Bank of India (RBI) ordered financial institutions to break all ties with individuals and businesses dealing in cryptocurrency. But in March 2020, the Supreme Court derailed that plan, overturning the order because it violated the freedom of trade guaranteed by India’s Constitution. The ruling pumped fresh life into India’s fledgling crypto market. WazirX, a leading Indian cryptocurrency exchange, said that its monthly trading volume has grown by over 16,500% since the ban was overturned.
But the ruling still left some loose ends. Retail banks, for instance, had been reluctant to facilitate crypto transactions, citing the RBI’s 2018 directive. The RBI finally clarified its stance on Monday, essentially revoking its 2018 circular and giving banks the green light to settle crypto deals.
The news was welcomed by the crypto community, but didn’t put to rest another threat to the market: legislative action.
Earlier this year, Indian lawmakers were expected to take up a bill that would have issued a complete ban on cryptocurrency and punish any violation with 10 years’ jail time or a fine—or both.
The proposed legislation was enough to scare investors like Nair, but ultimately, Parliament adjourned its session without debating the matter. Now the bill is on the agenda for the next session of Parliament, which starts in July.
The delay has given crypto exchanges and technology professionals more time to lobby against the bill. They are pushing for weaker regulation, arguing that India shouldn’t miss out on the economic opportunities associated with digital currencies. The lobbying has reportedly persuaded government officials to water down the legislation to regulate—rather than entirely prohibit—digital currencies.
There are few estimates about how cryptocurrency could benefit the Indian economy directly, but Kartik Shinde, a Mumbai-based partner in financial services at global consultancy firm EY, says the blockchain technology that underpins cryptocurrencies like Bitcoin is reason enough to allow digital currencies.
Blockchains, or decentralized, distributed digital data ledgers shared across a network of computers, promise to make transactions more efficient and secure. The technology could be especially beneficial in an emerging economy like India’s because of its high degree of transparency. It could let the federal government send money to remote villages without intermediaries, rooting out a source of corruption, Shinde says.
“Banning crypto essentially translates to not supporting the backbone of core blockchain development,” Shinde notes.
Skepticism of cryptocurrency stems from a misunderstanding of blockchain technology and fears that “meme” tokens like Dogecoin could lead to big losses for traditional investors, Shinde adds.
Members of India’s cryptocurrency community, meanwhile, are against a ban that could put them out of business.
“[India’s] growth has been driven by technology in the last 15 to 20 years,” says Nischal Shetty, CEO of WazirX and a member of the crypto committee at IAMAI. “Crypto is the next leg of the whole Internet ecosystem…So as a nation we cannot lose the opportunity and let other countries go ahead of us.”
Ketan Surana, director at Coinsbit India, an Indian cryptocurrency exchange, argues that a complete ban on cryptocurrencies will be unfair to investors, prevent the creation of thousands of new jobs, and deny the government tax revenue.
“I don’t believe that there will be a blanket ban on cryptocurrency as the government does realize and acknowledge the fact that cryptocurrencies are an amazing use case of blockchain,” he says. “Today we can’t live without Internet, tomorrow our children will not be able to live without blockchain and cryptocurrency.”
Experts say that striking the right balance between an outright ban and a free-for-all could actually promote India as a cryptocurrency hub.
“If [the market] is regulated, more people can invest in cryptocurrency without any fear of their money getting stuck due to some kind of law or regulation,” says Siddharth Mahajan, partner at Athena Legal. “It will also enable the crypto industry to grow in an orderly manner,” he says. “It gives a lot of certainty to the entire business.”
Nikhil Narendran, partner at Trilegal, says government regulation “will be a blessing.”
“Then people will become more confident, and then it will be a legal right to operate the business. That’s probably the best way to deal with the issue,” he says.
N.R. Bhanumurthy, vice chancellor at the southern Indian city of Bengaluru’s Dr. B.R. Ambedkar School of Economics, says that citizens should be able to invest in crypto as a matter of choice, but he’s against the use of cryptocurrency in payment transactions. For the sake of financial stability, any advances in technology should support the traditional payment system, which is the rupee, he says.
Meanwhile, there are still proponents of an all-out ban.
Madan Sabnavis, chief economist at CARE Ratings, argues that the anonymity of cryptocurrency transactions undermines India’s efforts to stop money laundering. Five years ago, Prime Minister Narendra Modi’s government outlawed high-value currency notes to make things difficult for hoarders of undeclared wealth. Since then the government has discouraged unidentified money transactions down to even the payment of electricity bills. “If you are permitted crypto, you have to ensure that there is a clear trail,” Sabnavis says, suggesting that such transactions be linked to a government-issued national identity card such as Aadhaar.
Indian lawmakers have released no new details about the crypto bill, and government officials have issued vague statements about what shape regulation might take.
Earlier this year, Reserve Bank of India governor Shaktikanta Das said he was worried about cryptocurrency’s impact on financial stability; the central bank has expressed concerns that digital currency could fund terrorists or invite money laundering.
Junior finance minister Anurag Thakur in April said that the government will ensure the interests of crypto investors are protected, but he raised concerns over the high volatility in digital assets.
What’s certain is that even as India considers a crackdown on cryptocurrency, it also wants to launch its own sovereign coin. Without giving specifics, Das said in February that a central bank–backed coin would be different from existing digital currencies and ensure India wasn’t left behind in the technical revolution.
“Crypto as an asset class sounds good as an idea. The question is, Why should I invest in something which has a policy risk because it has no approval from the government?” says Gnanasekar Thiagarajan, director at Commtrendz Research. “If RBI comes out with a cryptocurrency, or there are standardized rules for investment, then I will certainly be interested.”
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