Is India Banning Cryptos?
The cryptocurrency market had a stellar year in 2021, with India at the forefront of crypto investments. The country recorded the highest number of crypto owners in the world at a whopping 10.07 crore. However, there is still legal ambiguity surrounding cryptos in India, which is has been a cause for concern for investors.
The Indian parliament is set to discuss a new crypto bill in the winter parliament session. The bill, titled “Cryptocurrency & Regulation of Official Digital Currency Bill 2021,” will likely prohibit all private cryptocurrencies in the country and will provide a framework for a digital currency launched by the Reserve Bank of India (RBI). The digital currency might see a pilot launch in the first quarter of 2022.
A growing number of new traders and investors are delving into the crypto asset class in India, with coin exchanges seeing a record number of new registrations in 2021. However, the bill has created industry-wide scepticism regarding the future of digital asset class in the country.
Details About the New Crypto Bill in India
The bill will likely impose a general ban on activities like mining, generating, holding, selling, or “dealing” in cryptocurrencies, in the capacity of legal tender. This means investors cannot conduct any activities in virtual currencies as a “medium of exchange, store of value, and a unit of account.”
Moreover, the violation of these rules could lead to non-bailable arrest warrants.
Companies and individuals violating the laws could be fined up to ₹20 crores and face a jail term of 1.5 years.
The government also plans to crack down on crypto advertisements. The impact of misleading ads on investor protection was discussed extensively in the first parliamentary meeting, held in November 2021 and chaired by Prime Minister Narendra Modi. The bill will appoint the Securities and Exchange Board of India (SEBI) as the chief regulator of crypto exchanges and assets in the nation. The bill will prohibit custodian wallets, where uses can hold cryptocurrencies outside exchanges.
The Reserve Bank of India’s Stance on Cryptos
For years, the RBI has maintained a hard stance against cryptos, saying that they pose a severe threat to the macroeconomic and financial stability of the country. The digital asset class could undermine the central bank’s monetary policy and threaten the banking system and other regulated entities, the RBI believes. Other concerns about cryptos include their high price volatility and difficulty in tracing transactions.
The RBI has also consistently argued that managing foreign exchange risk will become challenging if money comes in via virtual assets, rather than fiat currencies like US dollars. IMF Chief Gita Gopinath has previously talked about these concerns for developing nations.
At present, industry analysts say that while the bill might not lead to a complete ban on the asset class, it might lead to stricter regulations in the market. For those who are investing in cryptos to make quick money, this might not be good news. But, for banks and regulated institutions, this means better security and efficiency. A central bank digital currency (CBDC) could be a huge boon for the economy.
However, fintech players are worried that such stringent laws will prohibit investments and innovation in the blockchain ecosystem, as well as in the Non-Fungible Token (NFT) asset class. In 2021, India received $638 million worth of crypto and blockchain investments. Various exchanges like Sequoia India, backed CoinSwitch Kuber and CoinDCX, received increased funding.
For now, we will need to wait and watch how the law is structured and how India’s crypto ecosystem evolves in 2022.