Cryptocurrency Issues and Challenges in India

By the end of 2021, there was much talk about the Government of India cracking down on the unregulated cryptocurrency assets in India by introducing a bill in the parliament which was to be passed in the winter session. The news of the bill of cracking down caused wild swings in the Indian crypto exchanges. Some investors exited with big losses; however, the market recovered after the government clarified that the crypto bill would not be passed in the current session.

India is known to have the largest ownership of crypto assets. The government has been keen on regulating the digital assets. It seemed to have prepared a framework for regulating the crypto assets and exchanges in India. Then, it did not go through with its intention to pass the bill. Speculators and investors of cryptocurrencies sighed in relief. Reserve Bank of India (RBI) is also interested in floating its own digital currency.

Number of Indians owning cryptocurrency

According to the available industry data, there are more than 10crore Indians owning cryptocurrency assets. Most of the investors are youngsters but senior citizens also constitute significant percentage. In terms of sheer numbers, India ranks ahead of the US.

However, the US outranks India in the total value of holdings. Whichever one looks at the scenario, one cannot fail to realize the gigantic size India’s participation. Any move to regulate the market must be undertaken only after safeguarding the interests of the Indian crypto investors.

Going by the industry data, total investments in cryptocurrencies have crossed USD 10 billion while the investments in 2020 were just a little over USD 1 billion. As the news of crypto bill became public there was significant drop in the valuation of crypto coins. Lux Algo Review

Issues over cryptocurrency in India

Indian government has got many apprehensions over the possible misuse of cyber technologies available today. Fears of the government were expressed by PM Narendra Modi while addressing a virtual meet of Sydney Dialogue where he asked the governments to work together  to make sure the technologies did not fall into the wrong hands spoiling our youth.

Before addressing the global virtual meet, the PM had chaired a meeting over the issues of cryptocurrency highlighting concerns including its misuse in money laundering and terror financing. Misleading claims of promising unrealistically high returns on investments were also part of the discussion. There were concerns over wooing investors through advertisements with allure of making big gains.

Official Indian position on cryptocurrency

There were rumors that the government might introduce the crypto bill during the Budget or Monsoons sessions of Parliament. However, the introduction of the bill did not happen as we all know even as Finance Minister Nirmala Sitharaman had said in July she was waiting for the Cabinet to consider the bill for moving it.

Gist of the bill listed in the legislative business for the winter session remains the same. The government seeks to create facilitative framework for regulation of cryptocurrencies in India. It would also pave the way for the official digital currency to be issued by the Reserve Bank of India. The bill also contains provisions for prohibiting all private cryptocurrencies.

However, the bill does make the case for exceptions for the sake of promoting underlying blockchain technology and its various applications. News agency Reuter citing an unnamed source had reported during the Budget session that bill would contain one of the most stringent policies against cryptocurrencies.

The bill would criminalize the possession, trading, issuance, mining and transferring of crypto assets.  In the event of passing of the bill, the report had mentioned that investors would be given a window for getting out of the investments. Failure to do so would attract penalties.

After the introduction of the parliament in the winter session, the sources said that the government was not going for a blanket ban on the cryptocurrency. The report added that it was looking to put in place a mechanism for stopping the misuse. However, the cryptocurrency will not be recognized as a legal tender as it would be risky for the fiat currency.

Trading cryptocurrencies in India

Trading in cryptocurrencies in India is legal. Millions Indians have crypto accounts for trading their assets on the exchanges. Indian position vis-à-vis the cryptcurrencies is not clearly defined yet but the public can trade them.

As per the Reserve Bank of India (RBI) notification of April 2018, trading in crypto assets was not legal. RBI had issued an advisory not to deal in cryptocurrencies. However, the Supreme Court of India overturned the RBI circular in 2020 judgment. It allowed the investors to trade the digital assets.

Despite the SC judgment, the banks private as well as public discouraged the investors not to deal in crypto assets quoting the 2018 RBI circular. This made the central bank to issue a clarification that banks could not withhold the services for crypto-related transactions citing the circular.

Concern of governments over cryptocurrencies

Many governments around the globe have banned cryptocurrencies including china, which was a big player in mining of the crypto assets. What are worrisome for the governments are the decentralized operations of the digital currencies with no governmental oversight? They are afraid that the unregulated cryptocurrencies will undermine their authority to issue fiat currency and their ability to regulate the money policy.

Cryptocurrencies can provide an option for avoiding tax and shifting wealth out of the jurisdiction of the governments. In Aug, 2021, the Finance ministry expressed the view of the Indian government in parliament saying that it does not recognize cryptocurrencies a legal tender or coin and would take measures to stop use of crypto assets to finance activities not considered legal.

High level ministerial committee set up to study crypto-related issues advised the government to ban all private cryptocurrencies except the ones issued by the state in India. However, the finance ministry said that the government will explore the blockchain applications for turning India into a digital economy. Blockchain is decentralized ledger supporting digital currencies.

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