In the latest development regarding the regulation of cryptocurrencies in India, the Indian government has reportedly begun considering an outright ban on the technology and its use.
This comes after there has been a constant back-and-forth between players in the Indian cryptocurrency market and regulators. While this has not only created a lot of friction in the space, it has also caused a general downturn in the market; a problem compounded by a bear market in the larger scale.
A Pseudo-Ban Emerges
India has had a history with cryptocurrencies, with crypto first coming up in the 2018 Budget speech by the then Finance Minister Arun Jaitley. The government declared that cryptocurrencies were not legal tender, which meant that they could not be used as currency in the country.
The government seems to have adopted its attitude towards cryptocurrencies owing to their purported use during the demonetisation era to launder money. Moreover, they have also stated on multiple occasions that they are either ponzi schemes offered by companies that promise large returns, or financial instruments used for illicit activities.
Over time, it became clear that the government held no place for the new asset class. The primary financial regulatory party of the country, the Reserve Bank of India, even released a circular that cautioned investors against being involved with digital assets or cryptocurrencies.
Post this negative attitude towards the technology, regulators moved towards a more heavy-handed approach, with a pseudo-ban of sorts. The RBI stated that all banks and financial institutions that fall under their purview were banned from providing financial services to companies and individuals involved in dealing with virtual currencies.
This was the beginning of the stranglehold on the Indian cryptocurrency market, with general market volume and liquidity showing the effect that the ban had.
Blockchain Players Fight Back
Many players in the blockchain space in India began fighting against the ruling by RBI, calling it unconstitutional and a violation of freedom. However, the case has not reached a conclusion on account of the Supreme Court dragging its feet.
The last significant development in the case took place on March 29th, which was the date the SC had declared after multiple reschedulings. However, the hearing was adjourned almost immediately, owing to a request from the side of the Government’s Counsel. The hearing has been postponed to the last week of April.
However, the damage from the lack of legal clarity seemed to already be done, as homegrown exchanges such as Zebpay and Coindelta had shut down. An exchange platform known as Unocoin aimed to bring liquidity into the market by introducing a Bitcoin ATM, only to be promptly shut down and the founder arrested.
The negative attitude towards cryptocurrencies led to a stagnation of the market and a general disinterest in one of the fastest growing fields.
The Ban On The Horizon
Recently, unconfirmed sources told a prominent publication that the Indian government has kicked off consultations on a draft bill to completely ban cryptocurrencies. The draft has already begun making the rounds to various concerned departments, said sources.
This includes the Department of Economic Affairs, the Investor Education and Protection Fund, and the Central Board of Direct Taxes, among others. Reportedly, the bill described a ban on “sale, purchase and issuance of all types of cryptocurrency”.
The rumblings of a ban on the technology were beginning to be heard late last year, as sources spoke of a meeting that was conducted with Arun Jaitley. Allegedly the meeting spoke about the “issues and challenges” of cryptocurrencies.
Over the course of this meeting, a ban was reportedly discussed, as a part of the “necessary steps” taken to stop the misuse of assets for illicit purposes.
Reportedly, the considered ban will be enforced under the Prevention of Money Laundering Act. However, the government seems to have a misinformed view of the technology, according to statements made by authorities.
Allegedly, feedback offered by the ministry of corporate affairs has stated that the sale, purchase and issuance of currencies such as Bitcoin and Ethereum are by “individuals and companies on false inducements of massive returns”. On the contrary, Bitcoin and Ethereum are both decentralised networks with a distributed method of issuance and no intrinsic connection to fiat money.
Anurag Agarwal, the joint secretary in the ministry of corporate affairs also stated that these were ‘ponzi schemes’ and that carried a lot of risk to investors. He stated,
“There is a real and heightened risk of an investment bubble of the type seen in ponzi schemes that can result in a sudden and prolonged crash,”
These are inaccuracies in the report that show that there was little to no preliminary research conducted before making the decision.
An Insider View
To gain a better understanding of the situation, Curious Dose reached out to Nischal Shetty, the CEO of WazirX, India’s biggest cryptocurrency exchange by volume. He stated,
“If you look at it, the IEPF is not a part of the [Subhash Chandra] Garg Committee. Until the Garg Committee gives any statement, I don’t think we should really be worried or react to any other statement from any other government body. ”
“[IEPF] is not the government body which is going to act on the cryptocurrency regulations. I think we should wait and watch. The IEPF has to do with the security market, not with cryptocurrencies. First of all the Garg Committee has to come up with a report before a bill can even be discussed. We should take it with a pinch of salt.”
Shetty also expressed positive sentiment towards the future of cryptocurrency regulation in the country, stating,
“There is also a court case which is going to come up in July, until now the government hasn’t given anything to the court. I don’t think there is a concrete bill-related discussion. In October, there was a report that said the government was preparing for a ban. If there was any truth to that, the Union of India, the government would have said something to the Supreme Court.”
Moreover, there are also international events that bode positively regarding the state of cryptocurrencies in India. Shetty stated,
“On 28th of June this year, there is going to be a G20 summit, where one of the most important agendas is going to be cryptocurrency-related discussions. India will be a part of that. This is in Japan, [which is] very pro-crypto. It’s sure that India will not take any policy decision without taking the global regulatory atmosphere into consideration, which is going to be very positive.”