Is Crypto Ban Possible In India?

The statement from Finance Minister Nirmala Sithraman on RBI's position on cryptocurrencies sent a chill down the collective spines of crypto platforms in India. Responding to a query, she made it clear in Lok Sabha that RBI thought that cryptocurrencies should be banned.

The central bank's positioning around crypto has always been cynical. In fact, RBI governor Shaktikanta Das had termed cryptocurrencies to be a clear danger in the 25th Financial Stability Report (FSR), published earlier this year. "Anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name", he explained in the report.

The FSR went as far as stating that cryptocurrencies can erode capital account regulation for developing nations too. But none of these statements made as big an impact as the FM's remarks.

"This is a big setback to the community. Everyone in the Web 3.0 community is open to getting the crypto and NFTs regulated in India since that is where the volumes are. India has the highest adoption rate of web 3.0 technologies in the world, and banning it again will not yield anything good in this upcoming space", said Tushar Gandotra, founder and CEO, FiEx.

India had previously prohibited crypto trading in 2018, but the Supreme Court overturned the decision in 2020.

"The world is not ready for a parallel monetary system and it may create chaos; hence a possible ban is more or less in the right direction to save the present monetary system", said Dr Vishal Sarin, Economics Professor, LPU.

"But on the other hand, the abrupt cessation of cryptocurrency may also create another problem", he added.

Crypto Adoption In India

Crypto has had a dream run in India. According to industry reports, there are 15-20 million cryptocurrency investors in India who have collectively invested USD 5.3 billion until early this year.

In another report by Chainanalysis, India was placed second on the 2021 Global Crypto Adoption Index Top 20, behind Vietnam. The adoption is quite evident as the crypto boom in the past few years has given birth to many high-performing exchanges, including WazirX, Bitbns, Unocoin and Zebpay. The Indian crypto scene has even seen the emergence of two unicorns (CoinDCX and CoinSwitch), with a heavyweight like Binance looking to make a bigger mark at the opportune moment.Chainanalysis 2021 Global Crypto Adoption Index Top 20

The most significant development of 2022 came when the Centre announced a 30 per cent tax on digital assets in the 2022 budget. While an overwhelming number of crypto leaders in the country said that the taxation was on the heavier side, some said that this was a positive step towards regulation. This also gave air to the idea of the central government warming up to the idea of letting crypto stick around without banning it. But the government has refrained from saying that taxation is a step towards legalisation.

Subsequently, the Centre proceeded to impose 1 per cent TDS on every crypto transaction to keep an eye on them. This time, there was a collective deflation in the crypto industry, and it was reflected in investor sentiment, too, as daily trades declined sharply for most exchanges.

Industry surveys carried out by various exchanges suggest that most daily traders are now hesitant about the frequency of trade ever since the new tax law came into effect.

"Pro crypto strata generally argue that the prevailing monetary system is debasing the currency and it is the only government trust that keeps the current monetary system alive. People should have the right to own the money of their choice and money which reduces their transaction cost and is easily available without any ifs and buts. But if we read between the lines, favouring crypto is like favouring currency that anyone can create, of course, need some competencies to do so, but more or less anyone can create", opined Dr Sarin.

Global Cooperation Needed For Ban

A recent report by Bitget and BCG said that the global centralised crypto trading volume was USD 54 trillion in 2021 and the spot trading volume was USD 20.6 trillion. It is further estimated that the number of crypto users could touch one billion by 2030.

But with the values of every cryptocurrency crashing in the past few months, the chorus for regulations is hitting a new peak with each passing day. Justifiably so, as significant players in the crypto space have had to file for bankruptcies and suspend withdrawals – much to the dismay of crypto traders and enthusiasts.  

EU is leading from the front in terms of regulations as it recently secured a deal in Brussels last month to cover the traceability of crypto assets. More such regulations and laws are being pondered upon across the Atlantic Ocean in the US and the rest of North America. And 2022 could be a landmark year for crypto regulations, as countries worldwide get serious about this topic. Further ahead, countries will have to cooperate to enforce regulations as crypto, much like the Internet, is borderless.

"Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any legislation for regulation or for banning can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards", FM Nirmala Sithraman had stated when asked if the government is going to ban cryptocurrency in India.

At The Forefront

India is being looked upon as a potential leader in Web 3.0 in the next few years, and crypto exchanges will play a significant role in helping the country grow its stature in this space.

"We believe that India can be a global hub for blockchain, crypto, and Web 3.0 talent, and the way to do that should involve creating an environment for startups to nurture and grow to cater to the needs of the Indian customers. This will also require strong coordination and collaboration with policymakers and regulators to find the best way to create policies which would sustain this ecosystem and protect consumers", said Tigran Gambaryan, VP, Global Intelligence and Investigations, Binance.

As the world continues to open up, the integration of these technologies for a decentralised worldwide movement cannot really be stopped completely. "India has banned it (crypto) once and realised it's not easy to contain a mass movement. The only way forward is to regulate it properly the way developed countries are doing it and add a lot of new jobs to our economy since India has been at the forefront of this technology", said Gandotra.

It will be difficult to stifle the potential of crypto through bans in the near future. But further depreciation of cryptocurrencies and global cooperation by regulatory bodies will decide the future of crypto. The next two years will be crucial to observe how economies across the globe look to formalise or prohibit crypto.