Which cryptocurrency ban in india?

Nirmala Sitharaman, the minister of finance in India, said Monday that the Reserve Bank of India has expressed concerns about the “destabilising effect of cryptocurrencies on the monetary and fiscal stability of a country” and has recommended “for framing of legislation on this sector,” she said.

“RBI is of the view that cryptocurrencies should be prohibited,” she added.

Formulating any legislation for regulation or banning of crypto will require “significant international collaboration,” she added (PDF). The government stated its reasoning in response to a set of questions raised by Tholkappiyan Thirumavalavan, a member of parliament, in the Lok Sabha, India’s lower house.

“Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore any legislation for regulation or for banning can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards,” she added.

The Financial Stability Board, a body of regulators, treasury officials and central bankers from the Group of 20 economies including India, said earlier this month that it would propose “robust” global rules for cryptocurrencies in October this year. The FSB said crypto assets were predominantly used for “speculative purposes” and didn’t operate in a “regulation free space.”

Sitharaman’s response poses further challenge to the adoption of cryptocurrencies and platforms enabling innovation atop of it in the nation.

India’s move to tax transactions and profits related to crypto trading earlier this year was seen as a move of Indian central bank beginning to embrace the fast-growing nascent technology. But in recent months, Indian banks have sent different signals to the industry players.

The Indian central bank continues to force the hand of banks from engaging with crypto platforms in India, a move that has made on-ramp a nightmare for the firms, people familiar with the matter said.

Coinbase halted trading service in India earlier this year because of “informal pressure” from the Reserve Bank of India, Brian Armstrong, the crypto exchange’s chief executive said. Local exchanges and other crypto firms have additionally seen a sharp decline in trading volume in recent months, in part because of the local taxation law.

Internet and Mobile Association of India, an influential 18-year-old lobby group in India, turned its back on advocating for crypto last week, citing regulatory uncertainty.

India’s central bank has been consistent with its crypto stance.

In February, a top official of India’s central bank compared cryptocurrency to a “Ponzi scheme” and suggested an outright ban in its sharpest criticism. T. Rabi Sankar, deputy governor of Reserve Bank of India (RBI), told an audience at a banking conference that cryptocurrencies have been “specifically developed to bypass the regulated financial system,” and are not backed by any underlying cash flow.

“We have also seen that cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi schemes, and may even be worse,” he said.

“As a store of value, cryptocurrencies like bitcoin have given impressive returns so far, but so did tulips in 17th century Netherlands. Cryptocurrencies are very much like a speculative or gambling contract working like a Ponzi scheme. In fact, it has been argued that the original scheme devised by Charles Ponzi in 1920 is better than cryptocurrencies from a social perspective.”

Sitharaman reminded that the Reserve Bank of India has been cautioning users, holders and traders of virtual currencies since December 2013.

“Further RBI, vide its circular dated May 31, 2021 has also advised its regulated entities to continue to carry out customer due diligence processes for transactions in VCs, in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT), obligations under Prevention of Money Laundering Act (PMLA), 2002, etc. in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances,” she added.

• Bitcoin. Bitcoin is the oldest and the most popular cryptocurrency in the world.
• Tether. Tether is a very popular stable coin that controls the price volatility of its tokens by pegging them to fiat currencies like the US Dollar.
• Cardano.
• Shiba Inu.
• Dogecoin.
• Ethereum.
• Uniswap.
• WazirX.

MUMBAI, Dec 7 (Reuters) - Proposed legislation that would ban the use of cryptocurrencies as a method of payment in India also seeks to make those who infringe the law subject to arrest without a warrant and being held without bail, according to a source and a summary of the bill seen by Reuters.

Prime Minister Narendra Modi's government has previously flagged that it plans to ban most cryptocurrencies - a move which follows measures by China this September that intensified its crackdown on cryptocurrencies.

According the summary of the bill, the Indian government is planning a "general prohibition on all activities by any individual on mining, generating, holding, selling, (or) dealing" in digital currencies as a "medium of exchange, store of value and a unit of account".

Flouting any of these rules would also be "cognizable" which means an arrest without a warrant is possible, and "non bailable," it said.

The source, who has direct knowledge of the matter, was not authorised to speak to media and declined to be identified. The finance ministry did not respond to an email seeking comment.

Although the government has previously said it aims to to promote blockchain technology, the proposed law will also deal a blow to its use as well as to the non-fungible token market in India, lawyers said.

"If no payments are allowed at all and an exception is not made for transaction fee then it will also effectively stop blockchain development and NFT," said Anirudh Rastogi, founder of law firm Ikigai Law.

The government's plans to crack down heavily on cryptocurrency trading sparked a frenzy in the market and several investors exited with significant losses. read more

Lured by a barrage of advertisements and rising prices for cryptocurrencies, the number of investors in crypto assets has surged in India.

While no official data is available, industry estimates suggest there are some 15 million to 20 million crypto investors in the country, with total crypto holdings of roughly 450 billion Indian rupees ($6 billion).

The government now plans to also come down heavily on advertisements that seek to woo new investors, according to the draft summary of the bill and the source.

Self-custodial wallets that allow people to store digital currencies outside exchanges are also likely to be banned, the source added.

The tough new regulations stem from the central bank's grave concerns about digital currencies and aim to put in safeguards to ring-fence the traditional financial sector from cryptocurrencies, the draft summary of the bill said.

The Securities and Exchange Board of India (SEBI) will be the regulator for crypto assets, the draft summary also said.

Back then, it was the central bank, the Reserve Bank of India (RBI), that lit the tinderbox by proposing that cryptocurrencies be prohibited in India and that sentiment mushroomed yet again after finance minister, Nirmala Sitharaman, informed the parliament on 19 July that the RBI wants crypto prohibited.

Establishing clarity in regards to this matter, the FM further said that no ban on crypto would take place without “significant international collaboration.”

As much as the idea of a ban on crypto in India is speculative, many investors are worried about what would happen to their money if a ban is imposed. What does it mean for technology in India? Would a ban in India have a huge impact on the global trading market?

We reached out to market research analysts and Indian crypto exchanges to find answers to some of these pressing questions.

The year 2018 saw the RBI prohibit banks from dealing with cryptocurrency exchanges, which led to many people flocking to exchanges to sell their crypto. The investors were given 3-6 months to exit their investments. Many who wanted to hold on transferred their crypto to foreign exchanges where laws were more crypto-friendly.

More recently, crypto has been grabbing headlines for all the wrong reasons, not only due to the steep drop in prices but also because of customers losing their investments due to major crypto hedge funds like 3 Arrows Capital capitulating and exchanges like Vauld suspending withdrawals due to unfavourable market conditions.

Surprisingly, India is amongst the top three countries where crypto adoption has skyrocketed over the past few months. A report by crypto exchange Gemini states that over 54 percent of the respondents from India were first-time investors in crypto over the past year.

In hindsight, all this talk about a crypto ban and investors losing their money has forced a lot of people to think about whether their investments are in any danger.

Though most crypto exchanges in India, like CoinSwitch Kuber and WazirX, act as custodial wallets where they only facilitate the transfer of your funds from Indian rupees to crypto and vice-versa, these exchanges don’t own your money and therefore, you have the right to withdraw your deposits whenever you want to.

It is believed that in the event of a ban as well, the investors will be allowed to withdraw their funds or move them to other physical wallets. However, at the end of the day, the buck stops at what the government says.

Till now, crypto has found a haven in countries like El Salvador and the Central African Republic, where Bitcoin is accepted as legal tender. There are many other countries, like Portugal, Switzerland and even Bermuda, where there is no tax on crypto.

When things have become difficult, crypto exchanges have ventured out to look for more conducive crypto-friendly economies. In case strict regulations or a ban is imposed in India, these exchanges would have no other option but to move their base out of the country.

In the past, firms like ZebPay and Vauld have moved to Singapore where tax laws won’t burn a hole in anyone's crypto wallet. While India has an unclear stance and regressive tax policies against digital assets, there’s fear that more crypto businesses in India might consider moving out to protect their investments. However, many experts believe that a majority of the crypto trading in India will move underground and crypto owners might seek illicit means to buy and sell crypto if a ban is imposed.

Apart from exchanges, multiple crypto startups in India will be forced to look for more business-friendly environments to work in.

This could not only lead to a loss of a massive talent pool in Web 3.0 and Blockchain developers, but India could also lose out on advanced technological innovations that this sector has to offer and will offer in the future.

The crypto market has a reputation for being influenced by what celebrities or billionaires on social media say about it. If Elon Musk tweets about DogeCoin, you can expect some commotion in the Doge community and that is sure to affect prices.

Despite this, crypto was quite resilient when a ban was imposed on it in China and hasn’t crashed majorly when Russia recently decided to prohibit the trading of digital assets (including crypto). Citing these examples, analysts believe a ban in India would not affect the market drastically.

In the past, India has made favourable conditions for small and medium businesses to thrive, which is one of the reasons why it is now a hub for unicorns that have gone on to spread their wings in international markets.

Crypto has huge potential. A report by Nascomm and WazirX says that the global ‘CryptoTech’ industry is estimated to be worth $2.3 billion by 2026 with global banks buying and embedding crypto into their financial ecosystem.

It is also said that this industry will create more than 800,000 jobs with the potential tax collection of $137 million by 2030. In the event of a ban, there is a lot to lose unless a proactive approach towards crypto is implemented in the years to come.