Indian cryptocurrency market

India’s Prime minister Narendra Modi presided over a high-level meeting, discussing ways to manage the burgeoning cryptocurrency sector. The meeting, as per the government sources, was the result of detailed consultation held with the Reserve Bank of India, the Finance Ministry, as well as domestic and international experts. Sources revealed that an agreement was reached to adopt progressive and forward-looking measures, while at the same time concerns were raised against the ‘unregulated sector’ from being used as a weapon for ‘money laundering and terror activities’.

Alarms were particularly raised with regards to a recent advertisement by the country’s leading crypto community who claimed that crypto investments have reached a staggering 600K crore. Sources said that the leadership viewed such marketing, both online and offline, as attempts to entrap individuals into speculating in this market.

On the crypto investment issue, sources divulged that the Reserve Bank of India is maintaining a close watch on such resources being transferred from banks to digital exchanges and is currently collecting data from the financial institutions, periodically. It is noteworthy to mention that the country’s top regulator has repeatedly expressed concerns with regards to its acceptance as a legal tender and even banned crypto transactions, a few years ago.

Later Supreme court struck down the ban in 2020 deeming cryptocurrency as not illegal but only an unregulated commodity. Despite that, the RBI maintained its stance and continued to express uneasiness over the digital asset industry. In a recent event, RBI governor Shaktikanta Das said,

“On crypto…we have serious concerns from the point of view of macroeconomic and financial stability. How the issue has to be dealt with — we have given our detailed suggestions to the government; as far as I know the matter is under the active consideration of the government and the government will decide.”

Latest developments in India’s crypto roadmap

The parliamentary committee on Finance has scheduled a meeting on Monday next week inviting cryptocurrency stakeholders and industry experts to discuss the emerging opportunities and challenges in the sector. In brief, the recent developments are a clear indication that India is on the cusp of drafting a legal framework and providing much-needed clarity for the country’s crypto community.

Owing to it to COVID-19, India’s economy has fallen on hard times. The lack of regulatory clarity in terms of cryptocurrency trading, holding, and business operation, for instance, have been tough for the people in the region.

The government of the country is reportedly clinging on to the goal of becoming a $5 trillion economy by the year 2024-25 and had previously highlighted that the infrastructure sector and other initiatives in Budget 2021-22 were aimed at achieving the objective. However, in order for that to happen, India needs to close a huge financing gap for its small and medium-size enterprises [SMEs].

One such way to do this is to tap into the cryptocurrency market. According to Indian Software Products Industry Round Table [iSPIRT], which happens to be a ‘think tank’ for the country’s software products realm, India has key assets which will facilitate attracting global capital.

India’s Unique Opportunity To Close SME Financing Gap By Attracting New Class Investors

For instance, the country’s youth population, the growing energy of its tech industry, the swelling internet connectivity, as well as the increasing acceptance of “informational collateral” that has mostly replaced the traditional physical collateral.

However, one thing that the country’s leaders have failed to do is to integrate these assets into the new multi-trillion-dollar crypto economy, asserted in the latest report by the think tank. iSPIRT went on to speculate that the cryptocurrency market could potentially be a “risk-tolerant, internationally oriented, growth-seeking pool of investors in the world” that has remained unexplored by the country.

iSPIRT acknowledged that the new class of “wealthy, globally-minded crypto investors” could, in fact, leverage “informational collateral” to pour in capital into potentially high-risk businesses that are way outside of the tried and tested venues of America, Europe, East Asia, and the large enterprises in the country. It also stated,

“India could offer a viable path to deploy this new crypto wealth in a controlled manner while solving for SME financial inclusion. Inflows of crypto from KYC-ed investors via approved Indian, global exchanges can potentially be allowed into India for the purposes of enhancing SME access to low-cost global capital.”

The vacuum in India’s regulatory climate with respect to the cryptocurrency industry has widened after the Supreme Court struck down RBI’s ban on the same. But the country’s plans to reportedly introduce a law to ban Bitcoin and other digital assets can have damaging consequences for the nascent crypto-ecosystem in the country.

What do we know about the Bill regarding India Cryptocurrency Ban so far?

• Yes Blockchain Technology
• Yes Digital Rupee
• No ‘Private’ Cryptocurrencies

The Regulation of Official Digital Currency Bill, 2021 is likely to be introduced in the Budget Session of Parliament in India. If passed, the bill would outlaw the use of private cryptocurrency as legal tender and currency.

The agenda by the lower court read,

“To create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of crytptocurrency and its uses.”

But the big question:

Can India actually ban Bitcoin?

While the latest move by the government of the country has been criticized by several players in the industry, it is, however, expected to end the years of ambiguity on the use of cryptocurrencies which is neither banned nor legalized in India and begin a much-needed dialogue between the naysayers and the proponents.

Having said that, India’s cryptocurrency ban seems highly unlikely. Here’s Why:

For one thing, Bitcoin and other major cryptocurrencies are heralded as ‘public’ and decentralized in nature and not ‘private’. Bitcoin is Not privately-owned by anyone. Hence, it remains to be seen if it comes under the purview of the bill that seeks the ban.

Secondly, there are multiple avenues of regulating than resorting to a blanket ban, something that is been vehemently pitched by the players in the crypto space.

Thirdly, an outright ban is likely to infringe the fundamental right to do business and the constitutional right to hold property, as asserted by tech lawyer Jaideep Reddy.

There is a big question mark that needs to be assessed as to how the ruling government plans to compensate the crypto-asset holders and entrepreneurs who have significant capital invested in it. Enforcing a ban would mean shutting down institutions overseeing crores of rupees of assets, cutting down tens of thousands of jobs, pushing innovation to rival countries, and not to forget, provoking a black market for Bitcoin.

Let’s talk numbers. More than 7 million crypto holders are currently present in India with over $1 billion crypto assets holdings in total. How does the state plan on disposing of the wealth?

Globally, countries such as Algeria, Ecuador, Egypt, Nepal, and Pakistan have resorted to a complete ban on cryptocurrencies. Other countries, such as Saudi Arabia and Taiwan, have taken the route of a partial ban.

It has been a year since the Supreme Court overturned the ban on cryptocurrencies. But so far, very little has been done to achieve clarity. One of the biggest hindrances was the fact crypto exchanges and groups have failed to build a strong lobby for a pro-crypto bill because direct lobbying is illegal in India.

Countries such as the US, on the other hand, saw tremendous efforts of various cryptocurrency lobbying groups leading to a positive shift in sentiment among policymakers.

India Cryptocurrency Ban Vs Regulation

Several industry players have urged for a proper regulation instead of a blanket ban on cryptocurrencies. Jaideep Reddy has called the draft bill “overbearing and arguably unconstitutional.”

However, it is still not clear if it will be the same as the draft bill proposed by the committee said Reddy. He further asserted,

“The name of the Bill is different from the draft Bill since it excludes the word ‘banning’; so there is a chance the Bill may be less extreme than the draft Bill. But based on the short description we have, there is a good chance that it will try to ban at least some trading.”

Cryptocurrency has emerged as a disruptive and lucrative space. Its underlying tech- blockchain, is in itself the future of finance. Eliminating crypto would pose a serious threat to innovation in the country that has seen a historic contraction in the wake of COVID-19 pandemic, a recovery from which would take a long, long time.