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.
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 Sitharaman 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.
There are also 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’s known that investors will not be able to hold or invest in private cryptocurrencies under the new law. However, it’s 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 advice 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 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 longer run, about 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 aren’t likely to be the only group that’s affected by the ban. In fact, the crypto ban may have a wholistic effect on the crypto and blockchain industry that’s been growing in India over the past 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, Unocoin’s Sathvik 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 Internet?”
Therefore, many crypto industry advocates in India believe that country has a lot to lose when it comes to technological and economic growth. Mathew Chacko, 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 it.”
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 Internet in the 90s.”
“Would India have been a global software superpower if it had banned 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?
— Nischal (WazirX) ⚡️ (@NischalShetty) February 16, 2021
Similarlly, Balaji S. Srinivasan wrote on Twitter that banning crypto in India could have disastrous consequences for India’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
Trading Schedule and National Public HolidaysGo to article >>
Therefore, some industry insiders–including Nischal 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.”
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 wouldn’t be the first country to do so.
Indeed, Indian finance minister Nirmala 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. China is also 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’s to come in other countries.
Indeed, Ben Reynolds, chief executive and founder of investment advice firm Sure Dividend, pointed out to Finance Magnates that “China has already banned trading and using cryptocurrency, with them already experimenting with 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.
The Stock Dork’s Adam 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 didn’t (and hasn’t) necessarily stopped its citizens from trading and holding cryptocurrencies, though there are limits to how and where they can do so.
WazirX’s Nischal 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).”
If India bans crypto, it affects 2 sections of India differently
CAN invest in Bitcoin outside India.
Continue to benefit from Crypto innovation
— 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.