What the crypto bill means for bitcoin investors

What the crypto bill means for bitcoin investors

A new bill listed for introduction in Parliament seeks to bar all private cryptocurrencies in India. It comes nearly a year after the Supreme Court quashed a Reserve Bank of India ban on crypto-related payments. Mint decodes what the bill means for crypto investors.

How does fiat money compare to crypto?

Traditional currency is maintained in paper or metal form, such as notes and coins, or in electronic form in account entries made by banks. Cryptocurrency is also a form of electronic money. The difference is that the record of cryptocurrency is maintained simultaneously by thousands of computers instead of a centralized entity such as a bank. Thus, the record of cryptocurrency can’t be tampered with by any person or authority. Cryptocurrencies such as bitcoin also tend to have limited supply. This has raised their price in the face of large money printing by central banks around the world following the covid-19 pandemic.

What sets blockchain apart from crypto?

Blockchain is a technological system that is used for maintaining records in a manner that they cannot be easily tampered with. The system can be applied to any type of record like educational certificates, land, or as in case of cryptocurrency, money. Governments globally have taken a positive view of blockchain and a negative view of cryptocurrency. This also appears to be the view taken in the crypto bill to be tabled in the Parliament. However, experts argue that the two cannot be separated. They say blockchain is powered by cryptocurrency and cannot function effectively without the latter.

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Does India consider crypto as a legitimate currency?

In 2018, the Reserve Bank of India banned banks from processing payments linked to cryptocurrency. This ban was overturned by the Supreme Court in March 2020 as violative of the freedom of business and profession under Article 19(1)(g) of the Constitution. Since then, the cryptocurrency sector has operated in a legal vacuum in India.

What does the govt’s crypto bill propose?

The bill listed by the government, for introduction in the Parliament, seeks to prohibit all private cryptocurrencies and lay the groundwork for an official digital currency. Such official currencies are being contemplated by several central banks around the world, including China. Cryptocurrency professionals have argued that cryptocurrencies such as bitcoin and ether operate on public ledgers and hence cannot be called ‘private’ cryptocurrencies. The detailed provisions of the bill have not yet been released to the public.

Should you sell your cryptocurrency?

The detailed legislation will offer more clarity on whether you should sell your cryptocurrency. The bill, however, mentions that certain exceptions may be made to preserve the underlying tech of cryptos (blockchain). Not all bills introduced in the Parliament are passed in the same session. The bill could be referred to a panel or deferred to a later session. Earlier investments in cryptos cannot be criminalized because of Article 20 (1) of the Constitution, which prohibits the state from passing retrospective criminal laws.

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India’s Proposed Crypto Ban Has Investors Nervous, May Feed Anti-Bitcoin Narrative

India’s cryptocurrency investors were caught off-guard and left confused after news broke Friday that the country’s Parliament will be considering a government-backed bill that would ban “private” cryptocurrencies. Given the ruling party controls both houses of Parliament, the bill’s chances of becoming law are good.

The Cryptocurrency and Regulation of Official Digital Currency Bill 2021 would prohibit cryptocurrencies in India and provide a framework for creating an official digital currency to be issued by the Reserve Bank of India (RBI). The RBI had previously prohibited crypto trading for almost two years before that ban was overturned by the Supreme Court in March 2020.

Industry watchers said the government’s definition of “private” could imply that any digital currency that is not sovereign could be seen as a “private” currency, including bitcoin. It’s unclear which cryptocurrencies would be affected as the bill it allows for certain unspecified exceptions to promote the underlying technology of cryptocurrency and its uses

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“This is (the) time to be nervous,” an official at a large cryptocurrency exchange said to the Economic Times of India on the condition of anonymity.

The move is bound to make potential and current crypto investors outside the country nervous as well. When naming potential obstacles to the growth of bitcoin as a store of value, that governments will try to ban it should it become too successful almost always makes the list. This past week, while appearing more warmly disposed toward bitcoin than he had in the past, Ray Dalio, the founder and co-chairman of Bridgewater Associates, the world’s largest hedge fund, listed government prohibition of bitcoin as one of his remaining concerns regarding the cryptocurrency. That one of the world’s biggest economies seems poised to do just that is only going to feed that narrative. News of the likely ban may have been a contributing factor in the fallback in the price of bitcoin Friday after it had risen in response to Elon Musk’s Twitter-bio shoutout.

Nischal Shetty, CEO of Mumbai-based cryptocurrency exchange WazirX criticized the announcement via Twitter, explaining “there is no such thing as a private cryptocurrency” and the bill is aimed at helping the RBI create its own central bank digital currency (CBDC) by banning so-called private cryptocurrencies with some exceptions.

“A country as large as India should at least work on understanding the underlying terminologies before presenting technology-related bills in Parliament – seems like a hurried move,” said Shetty.

Adding that just because a bill is presented does not mean it will be cleared and warned, “wrong or hasty regulations will set us [India] back by a decade. Right regulations will catapult India to the forefront of this technology.”

Young Indians hooked to crypto lure

After Elon Musk tweeted about a lesser known cryptocurrency, Dogecoin, in December 2020, its value surged instantly. This even as this month, the value of widely known cryptocurrency – Bitcoin – crossed US$ 40,000 (Rs 30 lakh), sending the overall valuation of the cryptocurrency market hurtling to over $1 trillion.With the smashing bull run of the Bitcoin in 2020 now also catching the fancy of investors in India, where people are cautious about trading activities, the government too is taking note of the rising investor interest and is likely to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, in the Budget session of Parliament.This has caused a flutter among the various stakeholders. Rahul Pagidipati, CEO at ZebPay, a cryptocurrency exchange, said a lot will hinge on how the Bill defines “private cryptocurrencies”.“Bitcoin is not privately owned by anyone. It is a public good, like the internet. Bitcoin and most crypto assets are more like gold and not an alternative to governmentissued legal tender,” he said, adding that the player hopes that the Lok Sabha members and advisors will consult crypto and blockchain companies before they make their decisions.Even Nischal Shetty, CEO of WazirX, which is one of the largest cryptocurrency exchanges in India, tweeted that there are over 7 million crypto currency holders in India and over $1 billion crypto assets owned by Indians.“Will Government ban & erase all that wealth overnight? I don’t think so. Government will involve us, the industry, in further discussions and we’ll present our points,” he tweeted.Nonetheless, cryptocurrency trading has piqued the interest of many young investors, confirmed multiple cryptocurrency exchanges and P2P cryptocurrency trading platforms.Sumit Gupta, CEO and cofounder, CoinDCX, pointed out that the cryptocurrency trading in India has seen a gradual rise, especially after the Supreme Court overturned apex bank Reserve Bank of India (RBI)’s cryptocurrency trading ban in March 2020. This decision allowed banks and financial institutions to offer services related to cryptocurrencies in India.“In Q1 we saw 10X growth in signups on the trading platform, 150% growth in daily active users and saw nearly 50,000 users onboard CoinDCX in the first 50 days of the SC overturning the RBI ban…,” Gupta said. CoinDCX has over 2 lakh users, of which nearly 35-40% have been onboarded in 2020.Pagidipati of ZebPay, pointed out that ZebPay has 3.8 million customers globally, of which half a million investors were added in 2020, of which 90% are from India. Pagidipati said that nearly 80% of its total investors are male and average age is between 20-30. “These are young investors who have a higher risk appetite and are investing for longer term,” he added.Even Gupta said that general profile of cryptocurrency investors in India is males in the 25-40 years age bracket, predominantly from tier 1 cities.Even as young investors are gung-ho about long-term prospects of cryptocurrency, experts feel that the lack of awareness about digital currency is the biggest challenge . Vikram Rangala, CMO at ZebPay pointed out that general perception is that investment in cryptocurrency is only for the rich. “Many people still think that if they have to invest in Bitcoin, they have to buy one Bitcoin which costs lakhs, but they can invest a small amount on smaller units of Bitcoin (known as Satoshi),” he said.Ray Youssef, co-founder, and CEO of New York-based P2P cryptocurrency trading platform Paxful, pointed out that many young investors around the world, especially in India, are turning to cryptocurrency as an alternative to traditional financial services.