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India Cryptocurrency Scene in Turmoil; Govt Plans on Banning Crypto Trading

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Just when India saw investors rushing back into the cryptocurrency trading scene, the country saw yet another setback with respect to regulations. In the latest development, the Indian government is reportedly planning to introduce a new law banning Indian cryptocurrency trading.

According to Bloomberg’s sources familiar with the matter, the bill in question is expected to be discussed soon by the federal cabinet before it is sent to the Parliament.

Blockchain, not Bitcoin

This is an often-heard stance across the digital asset space and the Indian government holds a similar sentiment. There is no doubt that the country’s government is a huge proponent of blockchain technology with several pilots and projects launched in favor of fledgling technology. More than half of Indian states have already initiated government-sponsored blockchain-based projects.

India still has a long way to go before it can call itself a hub of blockchain as despite these attempts to lure potential blockchain investments since the innovators in the country have a limited window of experimenting just with private blockchain as opposed to a more flexible global scenario.

At the same time, planning on an outright ban of cryptocurrencies in the country is a major blow to the crypto ecosystem in the country. This news comes after reports of the country’s finance ministry seeking inter-ministerial consultations on a potential ban surfaced earlier in June this year.

Blast from the past

The Reserve Bank of India had previously banned commercial banks from servicing to cryptocurrency traders and exchanges in 2018. This was responded with a lawsuit in the Supreme Court by cryptocurrency exchanges challenging the RBI ban in September 2019. The ban was overturned in the March of the following year bringing a respite for both investors as well as the crypto platforms.

Firms that had previously fled the country amid a lack of regulatory clarity to more crypto-friendly countries were looking to expand their footprint following the development. Soon after, the trading volumes on cryptocurrency exchanges servicing Indian clients also increased substantially.

Implication

While the ban materializes, it would not just be a huge traders/investors and existing cryptocurrency platforms, but it would also pose as a major hindrance to big companies seeking for the foray Indian market, and the country could potentially lose out on a lot of employment opportunities as other Asian countries have taken the route of regulating the space instead of outlawing them.

Existing cryptocurrency exchanges, on the other hand, is likely to register their companies abroad to skirt adverse legislation in India and not to forget the crypto assets worth thousands of millions owned by the people in the country that would have to be disposed off if the bill becomes a reality.

Indian Crypto Industry Worried of Alleged New Crypto Ban by Authorities

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Five months ago, the Indian crypto industry was filled with hope and excitement as the Supreme Court lifted a ban on cryptocurrencies. Nevertheless, the excitement and hope were once again overshadowed by uncertainty, after an anonymous government official allegedly reported that the government is drafting a new law to ban digital currencies.

According to the alleged government official, two ministries and the Reserve Bank of India ( RBI) are proactively structuring the legal framework to outlaw cryptocurrencies for good in India. A report by the Indian news outlet, Moneycontrol, on August 4,  claimed some Indian authorities want to ban cryptocurrency trading in the country. The report suggests that the Ministry of Electronics and Information Technology, the Ministry of Law and Justice, and the Reserve Bank of India (RBI) are deliberating on the structure of the law to ban digital assets.

New crypto ban scare in India

The news outlet quotes the anonymous official, saying, “Once Parliament resumes for the session, we are hoping to get [the law] ratified.” Indian lawmakers are expected to assemble again in late August or at the beginning of September. As per the official, the government wants to outlaw cryptocurrencies through a statutory structure, as opposed to other means such as RBI’s blanket ban. He adds, “It will clearly define the illegality of the trade.”Back in 2018, the Reserve Bank of India prohibited banks from offering their services to businesses involved with cryptocurrencies. However, the crypto ban was lifted by the Supreme Court back in March. Notably, the recent revocation of the blanket ban led to the rise of many new cryptocurrency exchange platforms in the subcontinent. Indian authorities are now threatening to introduce a law banning cryptocurrencies rather than RBI’s crypto ban.

Crypto is vital to Indians during coronavirus pandemic

Cryptocurrency exchanges across India have reported substantial growth in the last few months, as investors shift away from traditional assets. Notably, many parts of India are under strict movement restrictions since the government imposed a lock-down in March.

Indian-based crypto exchange platform, WazirX, saw a massive 80 percent growth in both March and April. Furthermore, CoinDCX, which is also based in India, saw ten times more new registrations the week after the crypto ban was lifted, than the average registrations before the repeal.