Cryptocurrency This Week: Have India’s Crypto Stakeholders Been Hoodwinked By Govt & More
The prospect of a ban on crypto in India now seems surer, with source-based media reports confirming suspicions about the ban
The Indian government’s crypto paranoia has found expression in letter, again. Everyone knew the bill was coming. They’ve known it since 2019 when a panel headed by then finance secretary Subhash Garg had proposed a draft bill titled, “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019”. Yet, the crypto industry chose to remain optimistic or was perhaps bound by compulsions that came with being an Indian startup in an unregulated space: to always pay lip-service to the government’s supposed generosity and good vision.
“We are confident that the government will bring in positive regulation for cryptocurrency. We are actively engaging with all government agencies to help assuage their concerns about the negative use cases of the technology,” read the templated response from several Indian crypto companies in September last year, when speculations about a ban on crypto during the monsoon session of Parliament were doing the rounds.
Crypto companies had reason to shrug off the speculations then, as the bill wasn’t listed in the Lok Sabha bulletin, which lists the bills to be taken up during a Parliament session. The speculations didn’t prove true and the remainder of the year was witness to the Bitcoin bull run, further solidifying stakeholders’ claims that crypto is the new age asset class with better returns than mutual funds or gold.
Last month, before the start of the ongoing budget session of Parliament, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, found mention in the Lok Sabha bulletin. The synopsis of the bill reads: “To create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. The bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”
Theoretically, we know that the world’s leading cryptocurrencies such as Bitcoin and Ethereum aren’t private but public cryptocurrencies and hence should be exempt from this bill. But we also know that the RBI doesn’t agree with this classification, and had deemed Bitcoin a private cryptocurrency in official communication with stakeholders back in 2018.
Recent source-based media reports have compounded the fears of a crypto ban. According to these reports, the government will ban holding, mining and trading of all cryptocurrencies, but will give investors a three-to-six month transition period when they can sell their crypto assets.
Post the emergence of this source-based scoop, the optimism about regulation for the sector seems to have faded away. “We are waiting for a clear statement from the government on the crypto bill and keeping a close watch on the news for any additional information,” Rahul Pagidipati, CEO at ZebPay told Inc42.
For Zebpay, the passage of the said bill in Parliament could effect the second closure of the company’s India operations. In September 2018, the company had shut its India operations, five months after the Reserve Bank of India (RBI) had barred banks from providing financial services to crypto companies. That RBI banking ban was overturned in March last year, giving crypto in India a lease of life. But it was short-lived, as it seems now.
Do India’s leading crypto exchanges feel hoodwinked by the government as reports about a likely ban emerge. Sumit Gupta, CEO and cofounder of CoinDCX is hoping against hope.
“As the industry awaits the content of the bill, it would be incorrect to suggest that the government is planning to ban cryptocurrency. We are hoping that the government will bring in some sort of regulation in the cryptocurrency industry and will consult stakeholders before going ahead with any move that may have a severe impact on the growing industry,” he told Inc42.
Many experts seem puzzled by the government’s apparent intention to ban crypto, as they feel that its agencies could earn a sizeable amount in GST and tax by regulating the sector. This assertion forms the focal point of a Khaitan and Co and Crebaco Global representation, sent to the government this month, urging it to bring in regulation for the sector.
“We have argued in our representation that the government could earn GST on crypto transactions and income tax on crypto gains. This could be done by bringing crypto exchanges under the purview of the Securities and Exchange Board of India (SEBI). Moreover, our case was never to treat crypto as a form of currency. We need to treat cryptocurrencies as assets, which has been the industry’s position all along,” Rashmi Deshpande, partner at Khaitan and Co told Inc42 about her law firm’s representation to the government.
However, besides the fear of nefarious use cases of cryptocurrencies, the fear of their increased use blunting RBI’s monetary policy and the rupee’s value also persists. Hence, the proposed ban and a plan to introduce a Central Bank Digital Currency (CBDC), which is the digital version of a fiat currency.
There are also reports that the government could use the ordinance route to ensure a smooth passage for the bill. The future of crypto in India looks bleak.
Bitcoin & Ethereum Prices
At the time of writing, Bitcoin was trading at $49,129, up 6.19% in the last seven days. The world’s most valuable cryptocurrency even touched the $50,000 mark.
Ethereum was trading at $1,780, up 1.77% in the last seven days.
Other News
Your Aadhaar May Be The Reason Why India Wants To Ban All Cryptos
The groundwork for a ban on cryptocurrencies may have been unintentionally laid several years ago when the government launched its Jan Dhan-Aadhaar-Mobile trinity in the early years of the first Modi government. Read the full ET story here.
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 new legislation governing Bitcoin and other such tokens in India. Read the full BloombergQuint story here.
The End of Crypto in India? Proposed Crypto Ban Has Big Implications
After a dramatic couple of years in India’s cryptocurrency industry, the regulations that guide the development of India’s crypto scene took a restrictive turn last week.
Indeed, Finance Magnates previously reported that India’s government appears to be planning to go ahead with a complete ban on private cryptocurrency investments.
Since the bill was introduced, comments by Indian Finance Minister, Nirmala Sitharama have implied that a final decision over the future of the bill has yet to be made. Specifically, Bloomberg Quint reported that Sitharama has said that the government would “follow the recommendations of the committee report” and that “the legislative proposal, if any, would be introduced in parliament following due process.”
While not all of the details of the bill are yet in the public domain, crypto investors are to be given a three to six-month transition period before they will be barred from investing in crypto through both foreign and domestic exchanges. Investors will also be required to exit their holdings, though some are exploring options for storing their cryptocurrencies independently.
Additionally, there are rumours that the bill will propose the creation of a government-controlled digital currency known as the ‘Digital Rupee’ that would replace all privately-created digital currencies.
Therefore, the bill, dubbed ‘The Cryptocurrency and Regulation of Official Digital Currency Bill’, represents a major setback for the cryptocurrency industry in India, and, some experts say, for the global crypto industry.
What are the implications of the ban in India and abroad? And, is this really the end of crypto in India?
The Ban Has Massive Implications for India’s Blockchain Developer Community
So far, it is known that investors will not be able to hold or invest in private cryptocurrencies under the new law. However, it is not clear whether or not cryptocurrency companies based in India will be allowed to offer services to foreign clients, or if blockchain research companies will still be allowed to practice their businesses.
Unocoin Co-founder and Chief Executive Officer, Sathvik Vishwanath told Bloomberg Quint that: “we’re all waiting for details [of the proposed law] to come out to determine our next course of action.”
The bills’ stated purpose is “to create a facilitative framework for the creation of the official digital currency to be issued by the RBI,” and to “prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”
Adam Garcia, Chief Executive of investment advisory firm, The Stock Dork, told Finance Magnates that indeed, “it is clear from the bill introduced to ban private cryptocurrencies in the country that the industry will be impacted negatively.”
“Investors have already been unmotivated to stop [the] further business of any cryptocurrency,” he said.
“The immediate impact of the ban on the industry, though it is not clear which cryptocurrencies will be banned, is that investors have halted the trade of these currencies in the country. In the long run, [for the] next 2-3 years, India will see a decline in the private investors in the cryptocurrency industry. The ban will also hurt the Blockchain developers in the country.”
If the Ban Goes Forward, “[India’s] Crypto Industry Is Expecting a Brain Drain”
In other words, private investors are not likely to be the only group that is affected by the ban. In fact, the crypto ban may have a wholistic effect on the crypto and blockchain industry that has been growing in India for several years.
Some experts say that one of the most immediate effects of this ban will be ‘brain drain’. The Economic Times of India reported over the weekend that: “the crypto industry is expecting a brain drain similar to what happened in 2018 after the Reserve Bank of India directed banks to desist from dealing in any transactions involving cryptocurrencies.”
In other words, cryptocurrency and blockchain experts may leave India in favour of other domiciles with more favourable cryptocurrency industry regulations.
Indeed, Vishwanath said that: “if [the] government goes ahead with banning all cryptocurrencies, except the one backed by the state, it will not make sense to continue our business in India. But, we’ll have to wait and watch.”
“Would India Have Been a Global Software Superpower If It Had Banned [the] Internet?”
Therefore, many crypto industry advocates in India believe that the country has a lot to lose when it comes to technological and economic growth. Mathew Chacko, a Partner at Spice Route Legal, told the Economic Times of India that: “for any innovative company to take advantage of blockchain the way they will do it, is to use crypto assets to finance the growth of the blockchain company, and if you ban that, it’s like you are permitting electric vehicles, but not funding them.”
Similarly, Nischal Shetty, the Chief Executive of WazirX, one of the largest cryptocurrency exchanges in India, wrote today on Twitter that: “Banning Crypto is like banning [the] Internet in the 90s.”
“Would India have been a global software superpower if it had banned [the] Internet?” he said. “Regulate, don’t ban in order to foster crypto innovation.”
Banning Crypto is like banning Internet in the 90s Would India have been a global software super power if it had banned Internet? Regulate, don’t ban in order to foster crypto innovation ✌️#IndiaWantsCrypto #IndiaWantsBitcoin https://t.co/LaVhQa2e8x — Nischal (WazirX) ⚡️ (@NischalShetty) February 16, 2021
Similarly, Balaji S. Srinivasan wrote on Twitter that banning crypto in India could have disastrous consequences for the country’s future as a tech hub.
“Banning crypto would be a reversal of economic liberalization in many ways. It would basically be banning the financial internet from entering the country. It’d be a trillion-dollar mistake for India. And, there are cheaper ways of achieving the desired goals,” he wrote. Srinivasan is an angel investor and entrepreneur who was formerly the Chief Technical Officer of Coinbase and General Partner at Andreessen Horowitz.
Banning crypto would be a reversal of economic liberalization in many ways. It would basically be banning the financial internet from entering the country. It’d be a trillion dollar mistake for India. And there are cheaper ways of achieving the desired goals. https://t.co/WYFbHIN6kk — balajis.com (@balajis) February 15, 2021 Suggested articles Trading Schedule and National Public HolidaysGo to article »
Therefore, some industry insiders, including Shetty, believe that it might be possible to overturn the ban before it is fully enacted. “Is India going to ban ‘Financial Internet’ because a few people do not understand technology?” He wrote on Twitter. “I don’t think so. We’re here to help.”
Day 838 Financial Internet: A permissionless financial ecosystem The world is competing to gain an edge in this new innovation Is India going to ban ‘Financial Internet’ because a few people do not understand technology? I don’t think so. We’re here to help#IndiaWantsCrypto — Nischal (WazirX) ⚡️ (@NischalShetty) February 16, 2021
Following in China’s Footsteps?
Then again, the Indian government may have its sights set on creating a healthy blockchain industry without private cryptocurrencies, and it would not be the first country to do so.
Indeed, Sitharama previously stated that India’s crypto regulations are modelled on China’s regulatory regime, which effectively banned trading and usage of cryptocurrency in late 2017. Just as India has alleged plans to launch a ‘digital rupee’, China has plans to launch a ‘digital Renmibi’.
And, despite China’s restrictive regulations, there have been a number of reports on a healthy blockchain industry within the country. Additionally, China is recognized as one of the world leaders in Bitcoin mining. In other words, a healthy blockchain space without private cryptocurrencies is at least theoretically possible. Therefore, India’s decision to follow in China’s footsteps could be a sign of what is to come in other countries.
Indeed, Ben Reynolds, Chief Executive and Founder of investment advisory firm, Sure Dividend, pointed out to Finance Magnates that: “China has already banned trading and using cryptocurrency, with them already experimenting on their own digital currency. India is now following in China’s footsteps by banning cryptocurrency and creating its own digital currency. This could be an early sign of more countries doing the same.
Garcia also told Finance Magnates that: “as far as other countries are concerned, I think this move will begin a trend of introducing digital currencies by them.”
“All the countries know that digital currencies are safer than the traditional ones because they are secured by Blockchain technology, and will want to introduce currencies of their own to allow safe trade of digital assets and currencies,” he said.
Unequal Effects on the Richest and Poorest in Indian Society
If India’s ban on private cryptocurrencies does go ahead, a number of analysts have also questioned how effective it would be. This is because China’s ban did not (and has not) necessarily stopped its citizens from trading and holding cryptocurrencies, though there are limits to how and where they can do so.
Shetty wrote on Twitter that: “if India bans crypto, it affects 2 sections of India differently.”
“The Rich: CAN invest in Bitcoin outside India, [and] Continue to benefit from Crypto innovation,” he said, while “The Common People: CANNOT invest in #Bitcoin [and] Lose on Crypto innovation while others progress (sic).”
Day 837 If India bans crypto, it affects 2 sections of India differently -The Rich:
CAN invest in Bitcoin outside India.
Continue to benefit from Crypto innovation -The Common People:
CANNOT invest in #Bitcoin
Loses on Crypto innovation while others progress#IndiaWantsCrypto — Nischal (WazirX) ⚡️ (@NischalShetty) February 15, 2021
In other words, a ban on private cryptocurrencies may be effective against small investors who do not have financial resources that wealthier investors have access to. If this is true, it is the poorest members of Indian society that could stand to lose the most as a result of the ban.
“Truth: Crypto is a huge global opportunity that India cannot afford to miss,” wrote Sumit Gupta, Co-founder and Chief Executive at Indian crypto exchange, CoinDCX, on Twitter. “Investors have been seeking clarity for years now. An outright ban will hurt local investors and will also stifle all investments flowing into India.”
What are your thoughts on the proposed ban? Let us know in the comments below.
ElonCoin? Musk Says He Could Launch His Own Crypto But ‘Only If Necessary’
Tesla Inc (NASDAQ: TSLA) CEO Elon Musk said he could launch his own cryptocurrency but would only do so if necessary.
What Happened: The entrepreneur was responding to a tweet that suggested that he offer a new coin named after himself to non-major Dogecoin (DOGE) holders to void their wallets.
Develop a new #ElonCoin, offer them to the existing non-major #dogecoin holders to void their wallet. You wouldn’t need to pay $ to make those majors dogecoin holders richer than they already are and allocate your time and support to make the ElonCoin the currency of the Earth. — Mansour Shahrokh (@MansourShahrokh) February 15, 2021
Binance CEO Changpeng Zhao said the move was necessary and also had a name suggestion for a Musk-developed coin.
It is necessary. Maybe call it MarsCoin? — CZ Binance (@cz_binance) February 16, 2021
Why it Matters: Musk is asking major holders of DOGE to “sell most of their coins.” He is of the view that “too much concentration is the only real issue.”
Musk had agreed previously that the concentration was “disturbing” when a Twitter user pointed out that one single wallet holds 28% of all existing DOGE.
Price Action: DOGE traded 10.06% higher at $0.058 at press time. Bitcoin (BTC) traded 4.64% higher at $48,848.54. Tesla shares closed 0.55% higher at $816.12 on Friday and gained nearly 0.2% in the after-hours session.
Benzinga’s Take: Musk has called upon DOGE Whales to void their wallets, and it seems if they do not comply with his request, the scenario for the Tesla executive to launch his own coin could arrive. Given Musk’s background and how he started his entrepreneurship journey by co-founding X.com, it would not an unusual move.
Story continues
Musk has the necessary payments background to put his money where his mouth is. He possesses the social and financial clout to make an ElonCoin into reality, and given his interest in cryptocurrencies of late, that might just happen.
Photo courtesy: Forbes via Wikimedia
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