Lately we have been hearing a lot about banning of cryptocurrencies in India. Many people fear that the BAN would actually happen soon and this has made the market volatile for the traders in India. In order to understand this, let us first rewind to understand the earlier steps taken by regulatory bodies and when the entire crypto was in news by Indian markets. We all know that cryptocurrencies are completely technology driven without any underlying asset base. The exchanges of cryptocurrencies have created a global market for exchanging such currencies without being aware of who the seller of such currency is and who is actually purchasing such currency from the seller. Having issues with such procedures and the fact that none of the regulators are regulating such exchanges, the RBI in 2018 issued instructions to all bankers to freeze the accounts of all exchanges operating in India and barring anyone dealing with cryptocurrencies to open a bank account in India. Being aggrieved with this instruction by RBI, few experts in such crypto markets approached the Apex Body giving them their submission that this instruction is against the democratic right of an individual of doing business in India and is against the Indian constitution. Supreme Court, agreeing to their submissions, ruled that the RBI being regulated body cannot take away the right of doing business and asked the regulator, i.e. RBI to lift the ban in March 2020.
After the above ruling by the Supreme Court, we have seen a lot of movement and positive news around in India with regard to the acceptance by the Apex Body of the crypto currencies. However, this news wasn’t old enough when the news was in the air for banning of cryptocurrencies in India. In 2019, the draft bill was prepared by a committee which was named Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019 which had rigorous provisions including prosecution for holding or dealing in cryptocurrencies in India. However, we never saw this draft bill becoming a law in India. Very lately, in the budget session, the Cryptocurrency bill ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ was tabled among the other 20 bills placed, the crux of this draft regulation being to ban “private” crypto-currencies while at the same time providing the Reserve Bank of India (RBI) with the requisite legal powers to develop a central bank-backed digital currency (CBDC). This was also mentioned by Hon. Minister of State for Finance in Rajya Sabha that ‘The government is finalising the contours of a new Bill to ban crypto-currency trading, mining and investments in the country, and will introduce the same in Parliament soon.’
The copy of the draft bill is not available in the public repository, but the speculations claim that this bill is aiming towards banning of all the private currencies and the government through RBI will issue its own Digital Currency which will be back with underlying asset. Now the question remains what would be private and what will be public. To our understanding the private currencies will be all currencies other than those issued by specific regulators of a country and such public currencies will be backed with underlying asset.
Why is Government of India so reluctant to adapt the Digital Currency when some of the other countries have already regulated these currencies?
Monitoring of these currencies would need the infrastructure which currently India is not well equipped with currently. In our experience, even the territories which are welcoming these currencies do not have adequate banking infrastructure to take care of AML (Anti Money Laundering) provisions and they are in the process of developing the same. Further, in absence of these infrastructures, since the Government of India takes these currencies as a threat for terror funding and illegal activities, according to the Govt. where these currencies are accepted as a legal tender, these would create a parallel economy which would not have any control of the Govt., thereby leading to huge economic implications, which India cannot afford at this stage. Therefore, in absence of adequate banking infrastructure, and the fact that introduction of these currencies would lead to reduction to existing banking channels and thereby result in huge losses to RBI, the Govt. of India is preparing to ban these currencies.
It has also been proposed that the Govt. will introduce its own asset backed digital currency and also use this technology for the betterment of existing banking channels in India. With all of these happening, India will experience many crypto exchanges and crypto experts walking out of India and hence the BAN will merely shift the process from India to outside India in a friendly jurisdiction (source mentioned below). It is also speculated that the new law will give a time frame or a transition period for the crypto holder to exit the holdings (similar to what was done in 2018). However, the long term traders would not prefer to exit but find an alternate to the situation.
What can the crypto trader do next:
Strategies and consult your professional. It is important that the professional understands the technology and the legal and tax laws around the world, most importantly India, with regards to such cryptocurrencies in order to give a neutral view point.