The Crypto Bill 2021: India’s Opportunity for Cryptocurrency Regulation

Asian countries are amid a new arms race, leveraging their vast technological resources to cement their places in the global economy. For this reason, Asia is a cryptocurrency and blockchain technology hub.

Approaches to cryptocurrencies vary across the region. Countries like China are overly restrictive. India has not banned cryptocurrencies, but in 2018, the Reserve Bank of India sought to stop mainstream financial institutions from providing services to cryptocurrency holders and businesses.

The resultant uproar led to joint petitions against the RBI, with hearings beginning in 2018. There was a sigh of relief on March 6, 2020, when the Supreme Court of India ruled in favor of the nascent industry.

The Supreme Court ruling said that the RBI was violating the citizen’s right to practice any profession as stipulated by law. The regulator had also failed to prove that virtual currencies pose credible threat to the country’s financial system. The ruling also noted that no law prohibits the trade and use of virtual currencies.

Crypto was back in India’s financial system. While that should have been the end of the war, it was not. The battle against the legitimacy of cryptocurrencies in India had just kicked off. The ruling had red flags that have once more set the crypto industry on a collision course with the regulator.

First, the judicial verdict made the RBI the authority in regulating virtual currencies. It also divorced cryptocurrencies from blockchain technology, labeling digital currencies a “by-product” of the technology.

In essence, this statement could segregate crypto, only legalizing centralized blockchain development. As suspected by most pundits, these loopholes became the backbone of the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 that seeks to ban cryptocurrencies.

Zero Regulation for a Massive Industry

The Crypto Bill seeks to place an actual ban on digital currencies in India. The bill will also promote virtual currencies regulated by the Reserve Bank of India. The committee behind the bill was set up in 2019 by the government as a reaction to the negative news surrounding the use of virtual currencies.

India does not have a regulatory framework for cryptocurrencies, despite it being the second most prolific bitcoin market in Asia. According to Paxful, the South Asia giant ranks second in bitcoin trading, transacting over 10,000BTC between 2015 and 2020.

India ‘s extreme positive sentiment towards bitcoin has escalated with the ongoing pandemic. 7,000 of the BTC mentioned above were traded in 2020. Part of the reason why India is pro-bitcoin is Asia’s high cost of remittances.

India has over 17 million immigrants overseas that use bitcoin as a cheaper cross-border payment vehicle. The instability of the rupee is another factor fueling the use of virtual currencies. Converting rupees to BTC, then the US dollar via Paxful or Localbitcoins has a high return. It is also possible to exchange BTC through India’s growing Telegram, Whatsapp, and Facebook chat groups.

Then, there is the loose regulatory policy that encourages easy trading, with exchanges like Okex and Wazirx witnessing a massive growth in new users and trading volumes. In 2020 alone, Wazirx had a 10x trading volume growth.

The low barrier of entry is also encouraging the proliferation of crypto startups and exchanges. In August 2020 alone, over $12.4 million or 1039.6 BTC was traded in India even though there are no consumer protections in place.

A New Hope for Crypto Regulatory Oversight

The government of India does not recognize crypto as legal tender. So, when the committee behind the bill decries digital currency risks such as extreme volatility and vulnerability to criminal activity, the government is bound to listen.

India has a massive population, and a poorly funded judiciary. Some of its laws are out of date. Any lawsuits against crypto scammers will be difficult to oversee in the absence of robust regulation.

Should the bill sail through parliament, it will ban all ‘private’ cryptocurrencies. The finance docket could also issue a government-run cryptocurrency that it can legally guarantee. Fortunately, other voices are standing up for blockchain and crypto use in India.

As an illustration, the National Institute of Smart Government under the Ministry of Electronics and IT has a “National Strategy on Blockchain” draft that looks keenly at the benefits of blockchain. It also notes that the government’s awareness of the potential within blockchain tech is very low.

The draft proposes regulatory clarity first before any decision making. The Finance Ministry’s Central Economic Intelligence Bureau is also considering levying a goods and services tax (GST) on crypto. This could classify digital currencies as assets, with the government earning taxes on margin trading.

India’s Prime Minister is also positive about youth and technology. The country has over 2.75 million software developers that could leverage all that blockchain has to create more wealth and jobs for the country’s population. A blanket condemnation of digital currencies will adversely affect the ongoing developments in blockchain since digital currencies are part of the system’s consensus and funding mechanisms.

Investors and crypto fans are also running the #IndiaWantsCrypto campaign to encourage a public pushback against the bill. They seek to protect the interests and rights of over 8 million people in India that value the crypto economy.

It is now emerging that the Crypto Bill might not have its moment in parliament, as consultations around the creation of a management framework heighten. The Crypto Bill could be tabled in the Lower House of Parliament’s monsoon session first.

The draft bill has not yet received its clearance at the cabinet-level as more voices rise to oppose it. An official says that the government is still ‘fine-tuning’ the bill, seeking to specify the virtual currencies that will face the ban. The government is also ironing out any grey areas that could sprout in the future as blockchain technology use cases grow in India.