Crypto industry urges government to reconsider ban

Crypto industry urges government to reconsider ban

NEW DELHI: The domestic cryptocurrency industry has been urging the Center to reconsider its apparent plan to ban private cryptocurrencies, like Bitcoin, in India. Industry stakeholders said while the government’s intention to create a Central Bank Digital Currency (CBDC) is a welcome move, the definition of what the government considers “private cryptocurrencies" will be important.

The Indian government’s plan to “create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India (RBI)," was announced in the agenda for the upcoming Budget session of Parliament. The legislation seeks “to prohibit all private cryptocurrencies in India", the agenda said. It is meant to allow the use of blockchain technology, which is the underlying tech behind cryptocurrencies, but many expect that it will make the use of currencies like Bitcoin and Ethereum illegal in the country.

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“The digital currency bill to be introduced in the Lok Sabha is a welcome step. Its success will depend on the details, particularly the definition of what the bill calls ‘private cryptocurrencies’. This is not a common term. Bitcoin is not privately owned by anyone. It is a public good, like the internet," said Rahul Pagdipati, chief executive officer (CEO) of crypto exchange and wallet ZebPay.

Industry executives say the government’s concern is likely about the possible use of cryptocurrency as an alternative to the Indian rupee (INR). They argued that cryptocurrencies instead are similar to assets such as gold. “As an industry, we’re in sync with the fact that INR is the only legal tender in India and about crypto being an asset/utility that people buy and sell," said Nishcal Shetty, founder of WazirX, India’s largest cryptocurrency exchange, which was acquired by Binance, the largest crypto exchange in the world.

“Bitcoin and most crypto assets are more like gold and not an alternative to government-issued legal tender," said Pagdipati. “Crypto assets and digital government currency can coexist and together," he said.

The industry has urged the government to consult stakeholders before coming to a decision. “We urge the government to take the opinion of all the stakeholders before taking a decision that may affect the livelihood of the entire workforce employed in the digital asset industry in India," said Shivram Thukral, CEO of BuyUcoin, another cryptocurrency exchange and wallet. “We have faith in the government and hope that this bill will move India forwards, not backwards," said Pagdipati.

India has considered banning cryptocurrencies once earlier. The government had floated a draft bill for “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill" in 2019. That bill proposed a fine or imprisonment of up to 10 years, or both, for mining, holding, selling, trade, issuance, disposal or use of crypto in India. The Reserve Bank of India (RBI) had also issued a circular in 2019 that banned banks and other regulated entities from doing business with crypto companies. This was struck down by the Supreme Court last year.

According to data from analysis firm Venture Intelligence, investments worth $24 million went into crypto firms in 2020, after the Supreme Court’s decision, up from a mere $5 million in the year before. Crypto firms in India have also experienced a successful year since the lockdowns in March 2020. Trading on crypto exchanges increased manifold, while Bitcoin’s sudden bull run in December brought in more investors too. The government’s current move threatens to put the future of this industry in disarray once again.

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Crypto predictions for 2021

The big crypto trends to look out for in 2021 are more volatility, tougher regulatory oversight and continued support from big institutional investors, says Luno in a recent newsletter to clients.

“2020 was a proper stress test with bitcoin hitting a low of around $5 000 in March and a high of $28 000. The new year is following the same trend with the price already reaching the $40 000 [R607 100] level,” says Marius Reitz, Luno’s general manager for Africa.

It was also the year institutional investors started backing bitcoin in a big way, with MicroStrategy, Mode, Square and others moving some of their cash reserves into the crypto as a hedge against the inflationary potential of fiat currency.

“Corporations, institutional investors, family offices, and hedge funds all want bitcoin to diversify their portfolios. While the numbers are small relative to traditional markets, institutional investment will continue to grow as the economic implications of Covid-19 become clearer,” says Luno.

Mainstream adoption will grow in 2021

Despite the extraordinary 300%-plus gain in bitcoin’s price over the last year, mainstream adoption will grow in 2021. Major crypto players are increasing their investment and interest in cryptocurrencies. The retail market is also on fire on the back of booming crypto assets, greater media attention and easy access to cryptos.

With each bull run, more investors enter the market for speculative purposes. This grows the user base and brings cryptos closer to the critical mass needed for more widespread adoption of cryptos for payments and other use cases.

A recent survey by Luno revealed that while a single global currency is not yet seen as valuable by respondents in Europe and Asia, Africans are ready to embrace a global currency. More than half of the respondents in Africa believe that a global currency would improve the current financial system.

Libra/Diem to launch

Libra, the cryptocurrency project launched loudly in 2019 by Facebook, went relatively quiet in 2020 and made significant changes to its intended offering, including a rebranding to Diem. This project is driven by some of the biggest companies in the world including Uber, Spotify, PayU and Andreessen Horowitz. As it unfolds, Diem could spark another wave of large companies wanting to get into the game of issuing their own coins, says Luno.

New US administration still not sure what to make of cryptos

US President Joe Biden appointed Janet Yellen as his treasury secretary, and she is no fan of bitcoin. Given the amount of institutional money that is flooding into crypto, and legislation allowing banks to hold bitcoin on behalf of their clients in 2020, there’s likely to be significant pushback from Wall Street that may make any bearish positions hard to maintain.

There are also several US state senators who are bullish on crypto, so it will be interesting to see if other countries follow the US lead should the country become more crypto-friendly.

More regulation on the way

With the crypto space maturing rapidly, regulators globally are accelerating efforts to either embrace or regulate cryptocurrencies. In South Africa, proposed regulations have been tabled by the South African Reserve Bank, and the Financial Sector Conduct Authority (FSCA) last year published a draft declaration of crypto assets as a financial product, which effectively means that any entity or person who renders intermediary services in relation to crypto assets must be an authorised financial services provider.

“Internationally, we expect to see more guidelines come into effect this year. Numerous central banks held talks on central bank digital currencies during 2020, with many now either in the research phase or further along,” says Luno, which has been working with regulators globally and in SA.

Rival blockchain to Ethereum

The first phase of Ethereum 2.0 finally launched on December 1, 2020 after years in the making. This is a huge transition for Ethereum, unprecedented in the history of cryptocurrency, which could leave Ethereum in a state of flux for the next two years, possibly opening opportunities for rival blockchains with similar offerings. Following its rapid transformation, Ethereum could get closer to its goal of becoming a globally-usable ecosystem for companies in all sectors and industries.

Crypto prices – expect volatility

“In a year of economic uncertainty, bitcoin didn’t waiver, outperforming the likes of gold and other stocks and shares. We have seen weeks of exponential growth and new all-time highs, but the crypto market has also taken brutal hits – all within the first month of 2021. As a result, price predictions are all over the internet.

“Venture capitalist Tim Draper says ‘Nothing is steady when one technology supersedes another. As bitcoin eclipses the government currencies and the banking system, there are going to be many fits and starts.’”

Cryptocurrencies like bitcoin are still a new alternative asset class and ongoing volatility is expected. A longer-term view shows crypto to be on an upward trajectory even with massive price drops.

Luno says it has witnessed record volumes on its exchange in recent weeks, and recently reached the milestone of 6 million wallets (customers) across more than 40 countries. “Our view on crypto in 2021 is decidedly upbeat.”

Visa prepares for crypto future

Visa CEO Alfred Kelly says the card scheme is preparing its payments network to handle a full range of cryptocurrency assets.

In an earnings call with analysts, Kelly says the company will treat the crytocurrency market as two distinct segments: traditional cryptocurrencies, such as bitcoin and Ether; and fiat-backed digital currencies including stablecoins and central bank digital currencies.

“In this space, we see ways that we can add differentiated value to the ecosystem. And we believe that we are uniquely positioned to help make cryptocurrencies more safe, useful, and applicable for payments through our global presence, our partnership approach, and our trusted brand,” Kelly told analysts.

For the first segment, Visa will work with “wallets and exchanges to enable users to purchase these currencies using their Visa credentials or to cash out onto a Visa credential to make a fiat purchase at any of the 70 million merchants where Visa’s accepted globally”.

This is similar to card scheme’s to connect with closed loop wallets such as Line Pay and Paytm

Visa has already struck card deals with some 35 organisations in the crypto-markets, such as BitPanda and BlockFi. According to Kelly, these wallet relationships “represent the potential for more than 50 million Visa credentials.”

Looking to the future, Visa will also train its focus on upcoming stablecoins that can be handled as a traditional and globally accepted mean of exchange, including bank-issued coins and central bank digital currencies.

“We think of digital currencies running on public blockchains as additional networks, just like RTP or ACH networks,” says Kelly. “But we see them as part of our network of network strategy.”

In December, Visa published a technical paper that outlines a novel approach for offline point-to-point payments between two devices, touting it as a means for central banks to replicate the physical exchange of cash using digital currencies.

Card rival Mastercard has also dipped its toe in the water, building a virtual testing platform to help central banks assess and explore national digital currencies.