India’s Crypto Investors Weigh Options Ahead Of Impending Ban

India’s Crypto Investors Weigh Options Ahead Of Impending Ban

The prospect of a fresh ban on cryptocurrencies in India has sent an army of crypto investors scrambling to think of ways to protect or liquidate their holdings. This, as the government appears to be in final stages of bringing in a new legislation governing Bitcoin and other such tokens in India.

On Thursday, BloombergQuint reported that India will go ahead with a complete ban on investment in cryptocurrencies via domestic and foreign exchanges, after giving investors a transition period of three-to-six months. The full contents of proposed cryptocurrency bill are not in public domain.

While there is no official data available, the three largest crypto-exchanges—WazirX, Unocoin and CoinDCX—claim that there are anywhere between 60 lakh to one crore cryptocurrency holders in the country with holdings of over Rs 10,000 crore.

These crypto investors are looking at options ranging from ‘self-custody wallets’ to transferring and selling their tokens. To be sure, provisions included in the upcoming legislation, once detailed, will eventually guide these choices.

Option 1: Move Towards ‘Self-Custody’ Wallets

One option being explored by crypto investors is to move their holdings into ‘self-custody’ wallets.

This means that investors could either store their digital wealth in a hard wallet, which is a small digital device like a USB drive, microSD card or a smart card. This device stores the investor’s private bitcoin key/s and can be locked away at a safe place or sent to a friend or relative. Some of the popular hardware wallets for storing bitcoins include Ledger, Trezor, Exodus and BitLox.

Further, there are online self-custody wallet services provided by global firms such as Blockchain, Electrum and MetaMask, among others.

Youtuber Aditya Singh, who runs a channel called ‘Crypto India’, told BloombergQuint that many cryptocurrency investors have reached out with queries on how they could stash their digital tokens away from cryptocurrency exchange wallets.

“There are multiple ways to do that (store cryptocurrency) but the easiest is to take the custody of your wallet,” said Singh. “Investors who are worried that it might be end of the road for cryptocurrency in India are shifting their virtual currencies from exchange custody to self-custody online or hardware wallets,” he said.

However, there is a caveat. If a cryptocurrency is transferred via a wallet that exists on an Indian exchange, authorities can track it down if they want.

“Even as the blockchain system is decentralised, the know-your-customer norms followed by the country’s exchanges require users to reveal their identity and that could be a way for authorities to trace it back to the person who holds cryptocurrency in the exchange’s wallet,” said Singh.

Option 2: Transfer To Friends/Family Overseas

The other option that cryptocurrency investors can also explore is transferring their crypto-tokens from their wallet to their family or friends living abroad, ahead of the impending ban.

“This should not be an issue as investors could easily transfer bitcoins from their wallet and send it as a gift to their friends or relatives to their wallets before the ban gets enforced,” said Sathvik Vishwanath, co-founder and chief executive at cryptocurrency exchange Unocoin.

However, he said this could happen only if the Indian investor gives up the ownership of those bitcoins. Once the transfer happens, the receiver of those crypto currencies would become liable to pay tax on those assets in their home country.

But according to Anirudh Rastogi, the founder and managing partner at Ikigai Law, the ability to do this would depend on the provisions of the bill. “While the draft needs to be reviewed to get more clarity on whether this would be allowed, it is expected that Bitcoin investors will have to liquidate their holdings one way or another,” Rastogi said.

Option 3: Sell And Exit

The third option is to simply sell and exit. There isn’t much evidence yet of any panic selling, though.

“Right now, panic selling is only among the relatively new crypto investors who began investing during the Bitcoin rally and have only done so speculatively,” said Vishal Gupta, co-founder of Bitcoin Alliance India, a non-profit organisation that educates people on cryptocurrency.

Vishwanath told BloombergQuint that even though there has been some increase in wallet withdrawals in February, the change is not significant.

“We have no way to determine how the end-user is storing their cryptocurrencies, but the increase in withdrawals has not been significant anyway,” he said. “Even all our banking relationships are intact as there is no way to find out the final outcome of the new bill yet,” he said.

WazirX Founder Nischal Shetty echoed that.

“Our investors are in for the long haul and we have not seen any big increase in wallet withdrawals, save a case or two." he said. “In case a ban is imposed, it will only result in an underground cryptocurrency market forcing genuine investors to function in an unregulated environment. That would serve nobody’s purpose.”

India Grants Crypto Holders Reprieve Ahead of Likely Ban: Report

Policymakers in India will provide a transition period if a proposed ban on cryptocurrency usage is passed as expected.

According to a report by Bloomberg on Thursday, a senior Financial Ministry official – speaking under condition of anonymity – told Bloomberg cryptocurrency holders were likely to be given a three- to six-month period to close their positions.

Those still holding digital assets after the window closes will likely see their investments liquidated, per the report.

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After that, cryptocurrency usage in all aspects will be banned via a new law set to be introduced in the current parliamentary session via the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.

See also: India Would Ban Private Cryptocurrencies Under Proposed Legislation

The bill is also expected to provide a framework for the Reserve Bank of India to issue its own digital currency.

As govt eyes regulation, fate of Indian crypto owners hangs in balance

HYDERABAD: With the Centre taking note of the rising investor interest in cryptocurrency and likely to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, the fate of nearly seven million cryptocurrency owners in India hangs in balance.The proposed Bill could halt the juggernaut of cryptocurrency, which had gained traction in 2020, in India, fear industry experts. This especially as Union minister of state for finance and corporate affairs Anurag Thakur has already said the government will explore usage of Blockchain technology for ushering in a digital economy but reiterated government’s stance that it does not consider cryptocurrency as legal tender and will take measures to eliminate use of crypto-assets in financing illegitimate activities.Kunal Pande, partner, KPMG India, said many countries have allowed use of cryptocurrencies while setting up mechanisms to monitor them. “The proposed Bill is a step towards ushering in a regulatory framework. However, it would be important to understand how the model proposed in the Bill coexists with other models being used across the world in this highly interconnected digital global economy,” he added.He said variety of approaches have been taken by countries in realm of cryptocurrencies such as stablecoin, which are backed by assets and reduce volatility. “India can learn from these countries and consider allowing other models like asset-backed cryptocurrencies, decentralized cryptocurrencies with safeguards rather than banning it completely as it may lead to migration of Indian cryptocurrency users to such setups in other countries,” he added.Sumit Gupta, CEO and co-founder of one of the largest cryptocurrency exchanges in India, CoinDCX, said globally, cryptocurrencies such as Bitcoin are considered a public cryptocurrency, owing to their public nature whereby participants can verify transactions in transparently. “Since the essence of cryptocurrency is to move towards a decentralized financial ecosystem, meaning no individual or organization can control it, banning them is practically impossible,” he said. He added RBI has indicated it may be exploring coming out with India’s own CBDC (Central Bank Digital Currency), like other countries, such as UK, Canada, Japan, Singapore, Hong Kong which are already at an advanced level of development while they explore possibility of use cases such as cross border payment option.Rahul Pagidipati, CEO, ZebPay, said, “We think a ban is unlikely, but if it happens, we’ll do everything within the law to help our members manage their funds. Wealthy crypto owners probably will move their crypto to a foreign account or cold storage wallet. Regular folks may not be able to do.” He pointed out that they would actively pursue dialogue with the government to persuade them to replace any ban with positive regulation.Mukul Shrivastava, partner forensic & integrity services, EY India, said banning cryptocurrency may not be a good idea. It is important to look at aspects like robust KYC norms, traceability or taxation with regards to cryptocurrency to boost confidence of users. He said in India, where many vulnerable citizens fall for fraudulent emails or calls, perils of cryptocurrency are high and adequate safeguards are important.