Amidst all the hype and concerns on the future of cryptocurrencies, India is looking to ban all private cryptocurrencies in its new bill to regulate virtual currencies in the winter session of Parliament.
The Crypto bill that is part of the 26 bills that the government plans to introduce in this year’s winter session seeks to ban all private cryptocurrencies with ‘few exceptions’, the official document said, adding that the decision has been taken to promote the official digital currency which will be issued by the Reserve Bank of India (RBI) which has shown the intent of bringing its own crypto but is yet to announce one.
The question comes up, ‘what will happen to the future of cryptos and more importantly, to everything that is in circulation already?’
The story so far
The government was planning to ban all cryptocurrencies last year and was even planning to introduce a bill during this year’s Budget. However, the bill was scrapped, and a committee was formed to discuss the matter further with the stakeholders. Since then, it has given hints that cryptocurrencies can co-exist with the Indian rupee but might be regulated. The Bill that it plans to table, states otherwise.
RBI, on the other hand, has been a little critical of Bitcoin and cryptocurrencies. Only a few days back, RBI governor Shaktikanta Das underlined the concerns around cryptocurrencies, calling them a threat to any financial system, at least till they are regulated.
He said that cryptocurrencies are serious threats to the macroeconomic and financial stability of the country and also doubted the number of investors trading on them as well as their claimed market value.
How will the ban impact Bitcoin investors?
It needs to be mentioned that India is one of the biggest cryptocurrency markets in the world. A recent report suggested that the country has more than 10 crore crypto owners while homegrown crypto exchange platforms have maintained that around 2 crore Indians have invested in cryptocurrencies.
Analysts have speculated that the new cryptocurrency bill might impact the existing investors who are already investing in private digital currencies like bitcoin in the country. Undoubtedly, cryptocurrency trading platforms in India are anxious about the government’s impending decision. Those against the ban believes that the world is becoming increasingly ‘digital’ and cryptocurrencies are, of course, digital by their very nature, making it the perfect ‘Internet currency’.
Studies have also proved that millennial prefer Bitcoin to gold as a safe-haven asset. MasterCard and Visa have opened their payments network for some cryptocurrencies. Customers using these platforms can now pay or accept money through crypto.
With a considerable number of public figures such as Elon Musk, Mike Tyson, Snoop Dogg, Lionel Messi, Salman Khan, Amitabh Bachchan, Kim Kardashian, Gwyneth Paltrow, Paris Hilton, Ranveer Singh, VVS Laxman and many other already investing their fortunes in cryptocurrencies, more seem to be jumping into the cryptocurrency bandwagon.
Needless to say, India cannot afford to ignore this shift but it needs a legal framework first. Analysts have speculated that the new cryptocurrency bill might impact some existing investors who are already investing in private digital currencies like bitcoin in the country. Undeniably, if private cryptocurrencies are banned in the country, it will be a loss to the existing crypto investors of the country.
Vatsal Gaur, Advocate and crypto expert mentions in a recent blog, “Banning cryptocurrency would negatively impact early-stage startups from raising funds. The ongoing COVID-19 pandemic has caused widespread recession across India. Early-stage startups are likely to struggle in raising funds.”
Opposing the government’s move, Crypto startups in India believe the country can become a thriving hub for crypto-innovation. Some have started a campaign to lobby the government to reconsider its proposed ban on cryptocurrencies.
Need for greater clarity, robust policy
Presently, the regulator bodies like RBI and Security and Exchange Board of India (SEBI) do not have any legal framework to directly regulate cryptocurrencies.
The government’s ban however, may not be totally baseless, considering that cryptos are created in a decentralized fashion and are not secure, if you lose your private key. The rate at which it exchanges for regular currency is again a function of sentiment, not rational economic factors. It also consumes electricity and could add to climate change, if used extensively.
So, what happens if the govt decides to ban cryptocurrency? According to experts, if the government decides to ban cryptos, then the transactions between the bank and your crypto exchanges will be stopped. You will not be able to convert your local currency to buy any crypto. Also, you will not be able to get them encashed.
Currently, there is no regulation or any ban on the use of cryptocurrencies in the country. Notably, there have been a rising number of advertisements, featuring even film stars, promising easy and high returns on investments in cryptocurrencies in recent times.
However, instead of a ban, it is far more useful to educate investors about the risk involved in the currency, its volatility and use. The need of the hour is also a robust policy and best practices from countries like the US, South Africa, Japan and Spain that are key drivers for profitable crypto mining operations.
Of course, the ban won’t be enforced overnight and cryptocurrency investors will be given a transition period of 3-6 months after the implementation of the new law to liquidate their investments. They could allow the promotion of the underlying technology, blockchain, the decentralized digital ledger.
As Zerodha co-founder Nikhil Kamath took to Twitter to voice some of his doubts over cryptocurrencies. “The problem with bitcoins is that there are 1,000 different similar coins. If anyone can create currency, what’s the point of currency. A 100 years ago if 20 of my 100 neighbors started their own currency, I would favor the one with the most muscle, ie govt, for me,” Kamath had tweeted on 16 November.
Others believe that a complete ban is not possible and the proposed ban is only on private cryptocurrencies. It is still not clear if the new legislation will include Bitcoin or Ethereum under the list of banned private cryptocurrencies, as these are ‘public’ owned. Hence, the government, technically, cannot term them ‘private’.
Meanwhile, Prime Minister Narendra Modi reportedly chaired a meeting to discuss the future of cryptocurrencies amid concerns that unregulated crypto markets could become avenues for money laundering and terror financing, We need to watch this space.
As Avinash Shekhar, Co-CEO, ZebPay, “We’re awaiting further details on the bill that is going to be presented in the winter session of the Parliament. There have been many positive steps taken by the government to learn and understand crypto and its impact on all stakeholders- investors, exchanges, policymakers. So, we’re looking forward to a crypto bill that takes into consideration all the inputs from those discussions.”