Published: September 20th, 2020
Amid speculation that India wants to launch its cryptocurrency, the populous Asian nation is back drafting a bill to ban cryptocurrency trading. The idea is motivated by the rise in cryptocurrency fraud which has been surging since cryptocurrency trade started soaring in March.
India is back planning a law that will ban cryptocurrency trade. The move places the country out of step with its neighbors who have chosen the opposite; to regulate the nascent market. The bill will be discussed before the federal cabinet after which it will be introduced in the parliament.
According to individuals familiar with the development, and who asked to speak in anonymity because of the country’s regulations about divulging information to the media, India wants to encourage blockchain use but is not very keen on spurring cryptocurrency trade.
Finance ministry officials contacted to confirm the news is yet to speak to the media.
The Reserve Bank of India, the country’s central bank, banned cryptocurrency transactions in 2018 after a series of frauds. The mentioned scams followed prime minister, Narendra Modi’s sudden ban on 80% of the country’s currency.
Cryptocurrency exchanges reacted to the regulation by filing an appeal in the country’s Supreme Court in September 2018. The court ruled in the exchanges’ favor in March 2020, a win that prompted a surge of almost 450% in crypto trade in just two months. According to a study by TechSci Research, the upsurge revived concerns of more Indians risking their savings. The situation has been worsened by job losses and a slowing economy suffering the effects of the coronavirus pandemic.
The peer-to-peer Bitcoin marketplace grew by almost 900% between January and May 2020 increasing in value from $2.2 million to about $22 million. Another marketplace, WazirX, which is based in Mumbai, grew by 400% in March 2020 before adding another 270% to its value, month-on-month.
India’s decision is critical for the region, especially since most Asian countries are still weighing the pros and cons of digital assets. For instance, China, which had earlier outlawed initial coin offerings (ICOs) and cryptocurrencies, has turned around to legitimize Bitcoin trading. In the Chinese context, Bitcoin trading is allowed only if the cryptocurrency is applied as a virtual property and not fiat money.
China is also enthusiastic about a central bank digital currency. On the other hand, South Korea and Singapore have strict guidelines regulating the crypto industry.
National Institution for Transforming India (NITI Aayog), the think tank of the federal government of India, is looking at possible ways of using blockchain to manage land records, educational certificate records, and supply chain for pharmaceutical drugs, among other applications.
What is ironic is that the Indian government is considering having a virtual currency yet it is averse to Bitcoin and cryptocurrency trade. According to Archana Chaudhary and Siddhartha Singh, staffers at Bloomberg, a renewed ban on Bitcoin and altcoins trading could affect almost 2 million Indians who trade. Further, the increasing number of companies that have set up or are looking to put up platforms that support the crypto trade may see their investment and plans go up in flames.
CoinSwitch, a Singapore-based cryptocurrency exchange is one such investment. The company added some 200,000 new users in June when it started its operations in India, and it is reporting volumes of between $200,000 and $300,000, according to its founder and CEO, Ashish Singhal.
About half of the Indian customer base of the Singaporean company is below the age of 25 years. CoinSwitch Kuber, the Indian arm of the Sequoia subsidiary allows residents of India to buy or convert cryptocurrencies to Indian rupees and vice-versa.
Singhal noted that state-owned banks are unenthusiastic about working with cryptocurrency companies and exchanges given the hazy regulatory framework. Singhal added that unclear regulations and unavailable legal recourse are scaring away investors who are wary of fly-by-night, unscrupulous players who are out to scam them.
Sanjay Khan, a New Delhi lawyer who provides cryptocurrency tax advisory services to firms, said that India does not need to ban crypto trading. Instead, it should institute adequate regulatory oversight that gives the government and RBI a good grip of the cryptocurrency landscape, the lawyer added.
Sanjay thinks that India can benefit a great deal from a fair and sufficient regulatory framework since the tool will help attract cryptocurrency businesses and investors.
Deepak Kapoor, the founder of BEGIN India, a think tank based in Haryana, agreed with Sanjay, adding that India needs to legitimize Bitcoin by providing regulations allowing the virtual asset to be traded like a stock. Deepak also wants the government to define cryptocurrency crimes to discourage criminals from misusing the technology.
However, he is against the idea of legalizing Bitcoin as a currency. He said that legalizing the coin will jeopardize the economy of the country since Bitcoin is a private currency.
Deepak’s call for adequate regulation was in response to fears surrounding the use of cryptocurrencies to fund terrorism. A U.S. agency recently seized millions of dollars in Bitcoin and other altcoins in more than 300 cryptocurrency wallets allegedly controlled by Al-Qaeda and Hamas.
Deepak said that India is lagging because it is yet to recognize and define cryptocurrency-based crimes. The think tank leader said he would prefer a situation where senior law enforcement and investigative agency officials know about emerging technologies such as the blockchain.
The industry is not unanimous on the idea of trading Bitcoin as stocks. WazirX CEO, Nischal Shetty, opposed the notion. He said that Bitcoin is not a slice of a company; rather, it is an asset like Gold.
India, which only recently backtracked on a decision to ban cryptocurrency trading has reneged on its promise to formulate policies to regulate the nascent industry. Instead, it is alleged that the populous Asian nation is thinking of banning crypto trade altogether. The bill proposing the ban will be discussed in the country’s federal cabinet before being presented to the parliament. The plan now throws the emerging industry into uncertain territories.