Future of cryptocurrency in India – where is it heading?

With the RBI hinting on putting a ban on cryptocurrency and Finance Minister Nirmala Sitharaman’s recent comment on seeking global support in regulating this space, there appears to be a new controversy stirred around the acceptance of cryptocurrency in the country –

The fate of cryptocurrency in India remains undecided. The recent comments of India’s Finance Minister on the virtual currency has thrown a wrench. Though she did not outwardly made any announcement on the banning of cryptocurrency, she did harp on seeking international collaboration for regulating or putting a ban on it. Her comments come in the wake of the Reserve Bank of India (RBI) mentioning that “cryptocurrencies are not a currency” and could have a “destabilising effect” on the monetary and fiscal stability of a country.

During the 2022 Union Budget, the Finance minister had also announced about having India’s own digital currency that will be issued by the RBI in 2022-23 using blockchain technology, while further adding that it will boost the digital economy. All these factors point to a not very conducive situation for cryptocurrency at this point.

Says Suman Bannerjee, CIO – Hedonova, “As per The Coinage Act, 2011, the RBI is right. Currency can be produced by RBI only. The Finance Ministry has clarified that cryptocurrencies are an asset and not a currency. The debate is beyond this. The actual reason why the RBI wants to clamp down on cryptos is because of its usage in money laundering. India is a non-capital convertible country. This means that there are a lot of regulations on Indian people or companies on their ability to convert the rupee for another currency. When a lot of Indians start doing this, ie, selling rupees and buying another currency, the rupee weakens. The RBI is right, in the Indian context, the usage of cryptos as a legal tender needs to be controlled.”

FM Nirmala Sitharaman's comments made people speculate that the government could introduce legislation to regulate the crypto sector in the Monsoon Session of Parliament that began. But no such bill came up.

Kumar Gaurav, Founder & CEO – Cashaa is of the opinion that nothing is going to change anytime soon. “To impose a ban on cryptocurrencies, international collaboration is required to prevent any kind of regulatory arbitrage. Certainly banning is not an option, so the only way forward is to regulate it but nobody knows when the Govt will do it.”

“The ecosystem is expanding but the Indian scenario is quite negative, especially with the government imposing high taxations and unfair policies,” cites Kartik Garg, an entrepreneur, investor, and startup advisor. “For a huge country like India to be at number one, we need to have more adaptive policies for every industry. I just hope it’s not too late by the time we realize and the Indian community comes together for this one common cause.”

On his part, he does not see cryptos as a replacement to legal tender or currencies but rather as a whole new asset class.

So what’s next?

Though an outright ban on this asset class is highly unlikely, but the government is going to try every means to curb its use in the form of taxations and stringent policies.

In his opinion, Kumar Gaurav believes that crypto cannot be banned but the so-called “self-imposed” ban can lead to Cash-based transactions. “Governments can temporarily influence the price of crypto but it is in nobody’s power to control it. Also, creating strict regulations could inevitably lead to an increase in cost,” he says.

An example to corroborate this fact is the draft Bill issued in 2019 which made holding, mining, selling, issuing, transferring or use of cryptocurrency punishable with a fine or imprisonment of up to 10 years, or both. The Supreme Court however later removed that ban in March 2020.

“We need to understand what the government can ban in the name of crypto. It can shut down all the centralized exchanges that are operating in the country. It can lock the access of famous international exchanges like Binance, or Yield wallets like Cashaa. But crypto users are tech-savvy; they can easily bypass these rules,” says Kumar Gaurav.

There was also a huge crash in the prices of cryptos a few months back. Lots of people have withdrawn their crypto investments owing to several factors like the crash of Luna, fall of several DeFi and Crypto lending platforms which has caused uncertainty.

“These factors are just temporary on how we questioned ‘why someone will shop on the internet when there are several hundred stores on the street’ but you see how Amazon is taking over,” says Kartik Garg assuring that the meltdown has nothing to do with regulatory fear. “This entire ecosystem is driven by community so this moves where people and the community are moving. Furthermore we see statements from the chair of SEC saying that US wants to regulate the space and protect investors with favorable policies meaning that the US is planning to go massive on institutionalization and regulation.”