Banning of Crypto could lead to illegal trade

The government released a list of 26 Bills, including the cryptocurrency Bill, to be tabled in the coming winter session of Parliament. There have been widespread speculations of an imminent crypto ban in the Indian crypto circuits and trading circles. There is a high grade of investments that have been in the country into crypto and investment worth hundreds of crores of rupees being driven into the crypto economy by the 15 to 20 million Indian crypto investors. Banning cryptos would not only prove a technological challenge for the government but also mean huge capital funds moving out of the country.

A cabinet note says, the government will regulate cryptocurrencies in the country, rather than imposing a ban on their use. The note reportedly states that cryptocurrency will not be recognised as legal currency, and describes the currency as “crypto assets”. These assets will be regulated by India’s market watchdog, the Securities and Exchange Board of India (SEBI), and citizens will be required to declare their assets and refrain from keeping them on exchanges outside the country. Individuals holding crypto will be given time to transfer their assets once the bill becomes law. Failing to transfer within the timeframe will lead to financial penalties.

Can India which has ever been at the forefront of changing the digital landscape afford to miss trillions of dollars worth of global opportunity? The industry doesn’t feel so. From the threat of a blanket ban, the industry has witnessed several positive developments, the crypto awareness in the country is rising, and a full-fledged statutory Bill is underway. Unlike China, no democratic country can afford to ban cryptocurrencies including India. Developed nations like the US, the UK, Japan, Australia, etc., have regulations and require exchanges to obtain a license before procuring business in the crypto markets.

The US SEC considers cryptos as securities for tax purposes, while Japan recognises them as legal assets, while the income from cryptos is treated as a ‘miscellaneous income’ and taxed accordingly. India can learn a lesson or two from these nations. Setting the implications aside, what can be the possible alternative course that the government can take while keeping in mind the interests of the stakeholders in the crypto industry? For the first step, the government needs to define the scope and meaning of the term ‘private cryptocurrencies.’ If the definition concerns ownership rights or anonymity of transactions - almost all the cryptocurrencies would be private except significant cryptocurrencies like Bitcoin and Ethereum that the miners collectively own.

Similar to the crypto norms prevalent in other nations, exchanges could be asked to procure a license and follow stringent KYC/AML procedures to dissuade money laundering and terror financing activities. The bright side is - the government has taken the initiative to learn the stance of the stakeholders in the country and conduct extensive research into the implications of adopting a CBDC system alongside cryptocurrencies.

Deepak Sahu, President & CEO, VARINDIA