#IndiaWantsCrypto Leads Pushback Against Specter Of New Ban

Going Round In Circles

In March last year, the apex court quashed RBI’s 2018 circular that barred banks and other financial institutions from facilitating transactions involving cryptocurrencies, observing that such a ban was 'disproportionate'.

Since then the government has been debating its approach towards these units, which have seen a spurt in price and interest over the past year. This week, Bitcoin prices hit a new high of $48,000 after Elon Musk’s Tesla Inc. invested $1.5 billion in it. Acceptance of cryptocurrencies has also been growing among traditional payment firms such as Mastercard and Visa. In India, too, investment interest has risen from existing and new users.

Should India impose a blunt ban amid this growing acceptance of cryptocurrencies? Most large countries have not banned crypto but some smaller ones like Nigeria have.

Contents of the government’s proposed bill are not in public domain yet but, on Feb. 9, in response to a query in the Rajya Sabha, Finance Minister Sitharaman said a high-level inter-ministerial committee had proposed that "all private cryptocurrencies, except any cryptocurrency issued by the state, be prohibited in India". The government, she said, would take a decision on the recommendations of the committee report and the legislative proposal, if any, would be introduced in the parliament following the due process.

While the initial understanding is that private cryptocurrency means anything not issued by the state, Rahul Pagidipati, chief executive at ZebPay said that the definition of what the bill calls “private cryptocurrencies” is not a common term.

"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 government-issued legal tender," he argued.

Former RBI Deputy Governor R Gandhi is not sympathetic to that view. Since RBI is the sole issuer of legal tender in the country, any virtual currency outside its regulatory purview needs to be prohibited. This, as “unregulated cryptocurrencies becoming valid payment instruments directly infringes upon the powers of the central bank.”

Uncertainty For Investors

While the crypto community is pushing back and authorities are still to make their position clear, investors are nervous.

“The impending bill has caused a lot of unnecessary clamour and confusion in the industry and among local cryptocurrency investors, which has led to some amount of panic selling since Jan. 29 in anticipation of the draft bill getting passed. But the volumes stabilized a bit with Tesla backing it," said Sathvik Vishwanath, co-founder and chief executive of cryptocurrency exchange Unocoin, without giving the exact numbers.

Considering there is no copy of the draft bill available, he said that any kind of advice to crypto investors will not be an informed one.

Sumit Gupta, co-founder and chief executive of cryptocurrency exchange CoinDCX said that even if a ban does get announced, investors can still sell via global trading platforms such as Binance, Huobi, OKEx, among others. He, however, added that the community will continue to push back. "We are not going to stop no matter what happens, because banning cryptocurrency is not the solution. It will have to be regulated," Gupta said.

In a letter dated Feb. 3, sent to several members of parliament, the not-for-profit industry body Internet and Mobile Association of India, argued that a ban would confiscate wealth of crypto investors and deprive them of their legitimate property. The letter, a copy of which has been reviewed by BloombergQuint, added that a ban on cryptocurrency would “eliminate responsible players and result in a grey market.”

Gandhi said that a middle ground that can be sought. “The solution could be that cryptocurrency be defined as a non-financial asset, and not as a security or a currency. As a non-financial asset, mature investors can choose to trade in the same,” he said.