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India’s reserve bank has long since condemned the use of cryptocurrencies, but other than the Supreme Court striking down its 2018 bill last year, the Indian government’s stance on cryptocurrencies has been largely uncertain.
On one hand, top sources tracking the government’s stance say it has shifted away from the idea of a complete ban. On the other hand, more banks have started barring cryptocurrency-related businesses from accessing their services, including ICICI Bank, Paytm Payments, Yes Bank and, most recently, IDFC First Bank.
The Reserve Bank of India’s (RBI) stance is understandable. As the body responsible for ensuring the country’s ability to absorb financial shocks, it has repeatedly pointed out the risks of using cryptocurrencies. Some banks still cite the 2018 circular as the reason for freezing accounts dealing in cryptocurrencies despite the RBI having repealed it earlier this year.
According to reports, India’s market regulator, the Securities and Exchange Board of India, will oversee legislation for the cryptocurrency sector once Bitcoin (BTC) becomes classified as an asset class. Sources also suggest an expert panel is being put together to study the technology and that the parliament’s Monsoon session will discuss introducing a cryptocurrency regulation bill.
A taxing problem
India has taken drastic measures to curb the amount of cash that goes untaxed, including demonetizing its 500- and 1,000-rupee currency notes in 2016. One of the biggest concerns of the Indian government is how cryptocurrency affords a degree of anonymity to its users and how it could be used to finance terrorism, launder money and help with other forms of criminal activity. However, this raises the question of whether cryptocurrency investors should pay the price for the inefficiencies of digital law enforcement.
“Ever since the supreme court ruling in March 2020, crypto-related trading has gained immense traction in India, especially among the Millennial and Gen-Z investor community,” Sumit Gupta, CEO of India-based cryptocurrency exchanges CoinDCX, told Cointelegraph, adding, “Well-meaning regulations will help strengthen the crypto ecosystem in our country.”
In March, Minister of State Finance Anurag Singh Thakur stated that the government was collecting income tax on cryptocurrency earnings and even collected Goods and Services Tax from exchanges. However, he also noted that the government doesn’t maintain any data on cryptocurrency earnings since it has no means of capturing such information. Gupta added:
“We will continue to collaborate with other peers in the crypto industry to place our collective suggestions before authorities.”
Shivam Thakral, CEO of BuyUcoin — one of India’s top exchanges — believes the RBI will eventually come around. “I strongly believe that the RBI is not against any financial innovation, which has the potential to boost the Indian economy and create jobs for the youth,” he said, adding, “The RBI’s main concerns are around the misuse of the power crypto assets have.”
However, Sidharth Sogani, founder and CEO of cryptocurrency research firm Crebaco Global, seems much more optimistic about India’s readiness for blockchain technology. “Technologically, we are ready. Regulated environments are easy to live in, [and] will enable the government to monitor crypto transactions,” he said, adding further, “India needs a dedicated department to regulate the crypto space. Not regulating them will only encourage the black market.” Thakral added:
“I have complete faith in the RBI, and we can expect clarity on regulatory guidelines for crypto assets soon.”
The country’s approach to classifying cryptocurrencies as an asset class is positive news for the space since it matches various other countries’ routes to create better frameworks for decentralized currencies.
“Cryptocurrencies have been viewed as a digital asset by the Australian Taxation Office for some time now,” said Michael Swan, founding member and chief commercial officer of asset custody service firm Unido. He opined further, “We see the steps taken by India as a natural progression and consistent with the global sentiment.”
However, there are concerns surrounding the cryptocurrency regulation bill that is to be introduced in parliament. After the RBI’s circular in 2018, the government set up a panel to report on news pertaining to the crypto space. In 2019, this panel recommended a blanket ban on digital currencies.
Young and hungry
India’s finance minister has stated that India will not shut down all options for cryptocurrencies, which some construed as a possible ban on private cryptocurrencies, paving the way for a state-backed central bank digital currency (CBDC). However, with the younger generation flocking to digital assets as the older ones did with gold, this could be a huge lost opportunity for Millennials and Generation Z individuals just entering the workforce.
The RBI’s inability to provide the supreme court with enough evidence that cryptocurrencies need to be banned means there is some pressure on Indian authorities to allow cryptocurrencies in the country. However, Indian investors, especially the younger ones, are being pushed from confused to disgruntled, as obscure regulation brings the fear of missing out on the giant swings cryptocurrency markets offer.
“India is one of the youngest countries with a large number of people who are early adopters of technology. Currently, we see more and more people between the ages of 24 and 40 adopting crypto,” said Gupta. However, when asked about whether India’s plans for a CBDC were seeing any footing, he refused to comment. Sogani added:
“India needs a dedicated department to regulate the crypto space. Not regulating them will only encourage the black market.”
“After the RBI booklet outlining possible plans for a CBDC, there has not been any media statement around India’s official CBDC,” said Thakral, adding further, “We have seen reports around major banks moving towards blockchain, and it could be a sign that banks are laying the foundation for making a CBDC a reality.”
Indian investors appear confident about the industry’s long-term growth despite the recent market crash, and market experts and leaders seem optimistic about how authorities will legislate crypto in the country. Though progress is slow, things appear to be moving, but with a market of close to 1 billion users, India’s stance on crypto is of global concern.