The End of Crypto in India? Proposed Crypto Ban Has Big Implications

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.

Bitcoin surpasses $50,000 for first time ever as major companies jump into crypto

Bitcoin hit a record high of more than $50,000 on Tuesday, continuing its blistering rally as major companies appear to be warming to cryptocurrencies.

The world’s largest digital currency by market valuable rose more than 3 percent to an all-time high of $50,389 just after 7:30 a.m. ET, according to data from Coin Metrics.

Bitcoin has had a boost from news of large firms like Tesla, Mastercard and BNY Mellon warming to cryptocurrencies. Tesla last revealed it had bought $1.5 billion worth of bitcoin and plans to accept the digital coin as payment for its products, while Mastercard said it would open up its network to some digital currencies. PayPal and BNY Mellon have also made big moves to support crypto.

Tesla’s use of corporate cash to buy bitcoin sparked speculation over whether other major companies would follow suit. Uber CEO Dara Khosrowshahi last week told CNBC that the company had discussed but “quickly dismissed” the idea of buying bitcoin. The firm is however considering whether to accept cryptocurrencies as payment.

These developments have led some crypto investors to believe the latest bull run is different to rallies past. Bitcoin skyrocketed to nearly $20,000 in late 2017 before losing more than 80 percent of its value the following year. Bitcoin believers say that, whereas the 2017 bubble was driven by retail speculation, the current cycle is being fueled by demand from institutional investors.

“I think bitcoin is a much more stable asset class today than it was three years ago,” Michael Saylor, CEO of enterprise software firm MicroStrategy, told CNBC’s “Street Signs Asia” program on Tuesday. “It used to be dominated by leveraged retail traders … on international markets with a lot of leverage.”

MicroStrategy and Jack Dorsey’s fintech firm Square hit the headlines last year after taking the unusual strategy of using corporate cash to purchase bitcoin.

“I think that starting in March of 2020, you saw institutions start to arrive and I think in 2021 you’re gonna see that trend continue,” Saylor added. “There’re enthusiasts for bitcoin as a medium of exchange … but I personally believe that the compelling use case is a store of value.”

MicroStrategy has seen its share price climb more than sevenfold since it first bought bitcoin in August. The company announced Tuesday that it would offer $600 million in convertible bonds to buy more bitcoin. There has been speculation that MicroStrategy offered a blueprint for Tesla’s bitcoin purchase after an exchange between Saylor and Elon Musk on Twitter about making “large transactions” with the cryptocurrency.

Still, skeptics see bitcoin as a speculative asset and worry it may be one of the biggest market bubbles in history. Some economists and investors say bitcoin and other cryptocurrencies have no intrinsic value, while others view bitcoin as the most extreme bubble in financial markets.

ElonCoin? Musk Says He Could Launch His Own Crypto But ‘Only If Necessary’

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The blowout rally in Bitcoin (CCC:BTC-USD) continues. As I write this, the best-known and most-valuable cryptocurrency trades above $47,000, down modestly from an all-time high set on Thursday morning. Source: Shutterstock Bitcoin now has roughly tripled since November, and rallied more than 50% this year. And the optimism makes some sense. Notably, corporations are increasingly comfortable with adopting Bitcoin. BTC saw a big catalyst this week when Tesla (NASDAQ:TSLA) said it would buy $1.5 billion of the crypto. The electric vehicle giant follows earlier adopters like MicroStrategy (NASDAQ:MSTR) and payment companies Square (NYSE:SQ) and PayPal (NASDAQ:PYPL).InvestorPlace - Stock Market News, Stock Advice & Trading Tips The run over the last four months continues what has been an incredible rally. Bitcoin only launched in 2009. It cleared $1 (yes, one dollar) for the first time almost exactly a decade ago. Give or take, BTC has appreciated 4,700,000% in ten years. There have been few assets in the history of mankind to show that kind of appreciation. Simply put, Bitcoin has created millionaires. But the rally hasn’t been without volatility. In fact, volatility and crashes both have been a key part of the Bitcoin experience. Many of those crashes started in environments similar to this one: when all seemed well, and further upside appeared almost guaranteed. That history suggests another reversal is almost certain to occur. That doesn’t mean investors need to rush to sell their BTC immediately, but at the least they should be on their guard. The History of Bitcoin Crashes For skeptics (and I remain one of them), early 2021 looks an awful lot like late 2017. 9 Meme Stocks That Social Media Won’t Shut Up About At that time, Bitcoin similarly was soaring. Bitcoin cleared $1,000 on New Year’s Day 2017. By December, it was over $18,000. $20,000 and beyond seemed guaranteed. Cryptos of all kinds were rallying. Initial coin offerings were all the rage. But as good as 2017 was, 2018 was nearly as bad. In U.S. dollars, Bitcoin had been halved by February. By the end of 2018, it was back below $4,000. As an article at the time noted, the 2018 decline was not the first huge drawdown the cryptocurrency had seen. Not even close. In 2012, BTC dropped 49% twice, with one of the declines a three-day, 57% punishment. Another three-day period the following year saw an incredible 83% plunge. On Nov. 19, 2013, BTC lost half its value. Later that month, it began a stretch of over a year in which it went from $1,163 to just $152.40. Even in 2017, a banner year, Bitcoin fell 30% or more five different times. And then there was the roughly 80% plunge that began toward the end of that year. Admittedly, of late the volatility has eased somewhat relative to early trading. Wider adoption and a larger investor base should continue that moderation going forward. Still, we’ve seen this before. Bitcoin can move north in a hurry, but it also can move, and has moved, south at roughly the same pace. Three Catalysts And there are a pair of catalysts that could trigger another decline in 2021. The first is simply the parabolic gains not just in BTC, but across asset classes. We’ve seen a number of stocks go crazy. That doesn’t just include miners like Riot Blockchain (NASDAQ:RIOT) and Marathon Patent (NASDAQ:MARA). It even goes beyond the so-called “Reddit stocks” like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). Commodities have taken off. Even in cryptos, DogeCoin, which started as a joke, now has a market capitalization of $9 billion. There are going to be crashes elsewhere, whether in cryptos, stocks, or commodities. And those crashes may well read across to Bitcoin. Surely there is cross-ownership between Bitcoin and other ‘hot’ assets. Those owners that see losses elsewhere are likely to de-risk by converting BTC to USD. There’s also the regulatory environment. Treasury Secretary Janet Yellen has repeatedly and publicly raised concerns about cryptocurrencies including Bitcoin. Certainly, Yellen can’t ban BTC trading and send its value to zero. But she can impact potentially bullish catalysts, like the long-awaited launch of an exchange-traded fund (which would need to be approved by the U.S. Securities and Exchange Commission). Finally, there’s the possibility that Bitcoin itself simply has run too far. It stands to reason that at least some of the incremental buyers since December are not diehard crypto adherents, who believe Bitcoin can disintermediate large financial institutions. They’re just joining in the fun. In modern trader parlance, there may be some “weak hands” that have jumped on board. They’re not necessarily the type to ride out volatility longer-term. The Case for Staying It bears repeating: these risks don’t mean an investor needs to rush to cash in their Bitcoin. In fact, for a couple of reasons, an investor can believe that both a) Bitcoin will crash again and b) Bitcoin still is worth owning right now. First, the crash may still be a long ways off — and more upside may follow. An analyst could have correctly predicted in early 2017 that BTC was going to crash within a year. A trader who listened to that advice still would have missed out on gains of at least 200%-plus. This rally doesn’t have to end immediately. Second, there’s a case that trying to time the crash (assuming it arrives) is a fool’s errand. Timing the stock market is a notoriously impossible strategy. Bitcoin’s history suggests it isn’t any different. Long-term bulls on Bitcoin (or any other cryptocurrency) can reasonably argue that immense volatility simply is a fact of life, at least for now. But if the long-term bull case plays out, the ability to ride out that immense volatility will pay off, even if there’s some short-term pain along the way. Neither is an unreasonable argument. But crypto holders need to at least understand that we’ve been here before. Short-term bursts of optimism like we’re seeing now almost always are followed by a reversal. I don’t believe this time will be any different, though it remains to be seen how steep that reversal is, and from what point it begins. On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article. More From InvestorPlace Why Everyone Is Investing in 5G All WRONG Top Stock Picker Reveals His Next Potential Winner It doesn’t matter if you have $500 in savings or $5 million. Do this now. #1 Play to Profit from Biden’s Presidency The post Bitcoin Is Going to Crash. The Big Question Is When appeared first on InvestorPlace.