India is poised to propose a new cryptocurrency bill to parliament. Investors are trying to figure out what that means for India, South Asia’s largest economy. Following the news of the Indian government wanting to ban all private cryptocurrencies, we have seen a severe collapse in the Indian crypto market. On November 25, Bitcoin was down by more than 17%, Ethereum by more than 15%, Doge and Shiba by more than 20% each. Though this morning we are seeing a little pause of the fall, till the Parliament on 29th give us the clear rules of regulation this panic won’t give much support to push the market up.
The Cryptocurrency and Official Digital Currency Regulation Act 2021 is supposed to ban all private cryptocurrencies in India from 29 November.
This isn’t new, we have seen a discussion during Feb, budget session. A list of 26 bills was prepared for discussion for the winter session. But the main question is if the bill gets passed how will it impact us who have invested in Cryptocurrencies? Will it regulate cryptocurrencies in India or it will ban them altogether? However, the government said the bill would allow certain exceptions to promote the technology and core use of cryptocurrencies. Prime Minister Narendra Modi said cryptocurrencies must not fall into the wrong hands and harm our young generation. The government and the RBI have recently indicated that they will implement strict regulatory controls on cryptocurrencies to avoid money laundering and terrorist financing instead of banning them altogether.
A different Prospect
It also goes on to say that the aim of the bill is to create and facilitate a framework of the official digital currency to be issued by the Reserve Bank of India. Why I’m saying this is because recently the news came where the Central bank, RBI is considering launching a digital Indian rupee in the second quarter of 2022.
Let me explain to you a little more,
The bill says it will prohibit all the private cryptocurrencies, right? Now define what a private cryptocurrency is? How do we distinguish it from the public ones? In legal terms, anything that is not issued by the government or sovereign can classify as a private cryptocurrency. But if we think practically aren’t all the cryptocurrencies are public? These are the questions many are asking.
Let’s try to understand the differences that experts are suggesting. According, to NASDAQ the public cryptocurrency is the one that operates an open blockchain with a ledger available for every user. The transactions are linkable through one network. For example, bitcoin, litecoin, Ethereum, etc.
On the other hand, a private cryptocurrency is where the ledger or the transaction information is blurred, and this is done in an order to provide privacy to the users. The transactions are difficult to trace as they’re routed through multiple networks. For example, Monero, Z cash, etc. Now it is hard to understand what exactly the government is meant by private cryptocurrency.
Also in a contrary way, any cryptocurrency that is not issued by the Govt is private.
Firstly, the Govt. has to clear the Chaos in the market has right now. The government needs to clear the terms of what it intends to do and the investors if they will be allowed a window to liquidate their holdings.
Why this is important?
Let’s understand the figure. More than 100 million people in India have invested in cryptocurrencies. More Indians have put their money in Crypto than the stock market in India. Even more than Americans, Indians have tried and tested the cryptocurrency market.
These investors can be misled by the ads recently the companies are showing. The ads show some quickest ways to earn money. But the ads failed to show that these offer no returns in case you lose your money. I’m sure we all have encountered such ads during the T20 world cup.
Apart from that the anonymous nature of these can increase drag trafficking, money laundering, etc. This isn’t happening only in India many countries all around the world banned cryptocurrencies. China also recently banned the decentralized currency. Also, India is not going to be the first country to think or launch its own digital currency, Singapore, Japan, Senegal, Sweden, etc has launched its own digital currency.
How much money have Indians invested in Cryptocurrency?
Nearly, $10 billion. We’re talking about massive volume here. Although, the exact figure may vary. The most amount the investment went into Bitcoin (in this summer 2021, the market cap crossed 1000 billion USD, more than a few mid or large-cap companies). The youths, millennials have grown their crypto portfolios and invested in this gigantic crypto coin. According to statistical data, more than 30% of young investors have invested in Crypto due to FOMO.
What the Experts have to say regarding the Cryptocurrency ban
Former RBI governor Raghuram Rajan said on Wednesday that the cryptocurrency ban may not work outside the scope of the regulation. In an interview with the television station, Rajan said that of the 6,000 odd cryptocurrencies, only one or two, or at least a handful, will survive. Because we don’t need thousands of cryptos for payments. Rajan compares the current craze of crypto with the 17th-century Netherland’s tulip craze.
Those who own crypto assets are at a disadvantage, as it doesn’t provide dividends of the investment. According to Raghuram, Cryptocurrencies currently have two sources of value, one is store value I:e; investment. Another one is for payment purposes.
Rajan added that cryptocurrencies in the United States are a $2.5 trillion issue that nobody wants to regulate. “In some cases, regulators do not fully understand the industry and its regulations. If most sectors manage to escape the grip of regulators, it will create more confusion among the public, Rajan said. He said the main issue for the RBI was whether this unregulated digital currency would be accepted as a medium of exchange, which could even affect the value of the rupee.
However, a strong central bank can maintain the value of fiat currency and ensure that it is not replaced by cryptocurrencies.
“What the government can highlight is obtaining information from crypto subjects. If they are too large, the government can investigate them further to ensure no outright fraud is taking place. This is a situation where you can send a warning to the public,” he said.
Shivam Thakral, CEO, BuyUcoin: Cryptocurrency accounts need to be flexible enough for young blockchain projects to thrive. “We also ask the government to immediately provide clarity on taxation and submission of crypto assets,” he said.
Satvik Vishwanat, Founder and CEO of Unocoin: The crypto industry will have to wait for the bill to enter parliament because it’s “not ripe at the moment to try to decide what’s really in front of us”.
WazirX founder Nishal Shetty has given a neutral statement. “Our esteemed Prime Minister talking about crypto and the need for regulation is a great thing for India. This means a lot to the crypto ecosystem. This further strengthens our belief that India will be one step ahead in this global phenomenon.”
Vijay Shekhar Sharma, the founder of Paytm said today that cryptocurrencies will remain here and are primarily based on cryptography. “I am very positive about crypto. It is mainly based on cryptography and in a few years it will become a major technology, such as the Internet, which (now) becomes a part of everyday life,” he said. “In five years it will be mass technology.”
Also, we shouldn’t forget that crypto brokerage companies like Coinswitch, Coindcx will face a major problem for this. Either they need to switch their product if cryptocurrencies get banned or else we will see a spike again in unemployment. But we need to wait for further details for a clear comprehension about govt. plan. The bill needs to get passed by Parliament.
Update as of 3rd Dec 2021
- The Indian government does not want to ban cryptocurrencies, but rather regulates them as “assets”.
- It is reported that all Indian cryptocurrency exchanges are under the preview of the SEBI.
- Citizens will no longer have the right to store their cryptocurrencies in foreign exchange or in personal wallets, which means that you have to declare your cryptocurrency investments and store them on Indian exchanges.
According to Sitaraman, the bill is still awaiting cabinet approval before it can be submitted to members of parliament.