India’s Crypto Regulation Bill Ahead: Is a Ban Really Happening?

Meghna Das  |  Nov 25, 2021

Despite concerns over the future of unregulated digital assets, cryptocurrency usage has accelerated in India. Since 2020, India has seen a meteoric surge in cryptocurrency investments, particularly Bitcoin. India’s market grew 641% over the past year and has a 59% share of activity taking place on decentralized finance (DeFi) platforms. Different countries and groups have different approaches to regulating cryptocurrencies, but it is reasonable to say that India has been one of the most resistant to them thus far. 

And after a long wait, the crypto community of India is finally going to meet its fate this year. In the week beginning November 29, the Indian Parliament — especially, the lower house known as the Lok Sabha — will debate the country's cryptocurrency regulations. There was some panic selling due to the absence of modification in how the item was put on the agenda. WazirX, the Indian crypto exchange, briefly went down, with investors unable to withdraw or deposit cryptocurrency.

What Does the Bill Contain?

This panic selling created a lot of confusion and people feared that the Government was going to ban all private digital currencies. “The bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” read the agenda description for the crypto bill discussion.

Now, to begin with, what does the government mean when it says "prohibit" — is it an outright ban or only a set of guidelines under which cryptocurrencies would be permitted? Second, what do you mean by "private" cryptocurrencies? This has heightened concerns among crypto enthusiasts that lawmakers will be biased against an inherently dangerous business, and that the ruling party will approve the law without taking investors’ input into account.

The restriction is part of the proposed Cryptocurrency and Regulation of Official Digital Currency Bill, which will be submitted in the legislature's winter session, according to a government bulletin.

"To create a facilitative environment for the formation of the official digital currency to be issued by the Reserve Bank of India (RBI)," the proposed legislation states.

A Ban Can Only Lead to More Unlawful Usage: BACC

The Blockchain and Crypto Assets Council (BACC) of the IAMAI has stated that a blanket ban on cryptocurrencies in the country will promote non-state actors, resulting in the increased illegal use of such currencies. Prime Minister Narendra Modi had recently said, “It is important that all democratic nations work together on this (cryptocurrency) and ensure it does not end up in the wrong hands, which can spoil our youth.”

 Meanwhile, IAMAI said in a statement to the media that it fully agrees with the PM's viewpoint. In its earlier submission to the Supreme Court, it had listed several negative consequences of a ban, including zero accountability and traceability of the origin and end-use of cryptocurrencies, as well as complete tax evasion. Retail investors will suffer as a result of the restriction.

Crypto exchanges operating in India provide an effective monitoring tool and are committed to building an ecosystem that ensures investor security while also bringing both investors and exchanges into compliance with tax rules. The Council thinks that the exchanges' efforts should be supported by legislation allowing them to provide safer services to investors while also paying fair taxes to the government.

The Bill Will Regulate and Not Ban Crypto Completely

According to a top executive of Zebpay, one of India's largest crypto exchanges, lawmakers may eventually decide for stringent limitations on the crypto industry rather than an outright ban on private digital currencies. And this is why the entire Indian crypto community is expecting right now. “I believe that we will have some kind of coherent regulation, but on the tougher side,” said Avinash Shekhar, co-CEO of Zebpay, told CNBC on Thursday.

With that bill, India hopes to outlaw most private cryptocurrencies while also establishing a framework for the Reserve Bank of India to develop an official digital currency. The bulletin stated that it will allow "for specific exclusions to promote the underlying technology of cryptocurrencies and its usage." The bulletin stated:

“... the feelers which we are getting from the government is that they’re looking for some kind of regulation, strict regulation, but not a complete ban.”

The Reserve Bank of India is considering launching a digital Indian rupee pilot program in the second quarter of 2022. Shekhar told that the government's stance on cryptocurrencies has shifted in the last eight to nine months as a result of consultations with various stakeholders, including crypto exchange operators.

So What Should We Expect?

Over the last few years, the Indian cryptocurrency market has grown at an exponential rate, and it is expected to reach $241 million in India by 2030 and $2.3 billion globally by 2026. According to the survey, the industry is increasingly attracting new start-ups, with more than 60% of Indian states becoming CryptoTech adopters and over 15 million retail investors. Over 230 CryptoTech start-ups are already active in India, according to the report, which also notes that growing institutional and retail investment has raised awareness of the benefits of CryptoTech in the country. 

Therefore, with growth like this, the Indian Government has to consider a lot before putting a complete blanket ban on crypto. With regulation coming in, it is safe to say that there will be a major area where multibillion-dollar companies will be opening in every sector in India.

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