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.
Indeed, Finance Magnates previously reported that India’s government appears to be planning to go ahead with a complete ban on private cryptocurrency investments.
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 Sitharama 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.
Additionally, there are 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 is known that investors will not be able to hold or invest in private cryptocurrencies under the new law. However, it is 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 advisory 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 [the] 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 long run, [for the] 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 are not likely to be the only group that is affected by the ban. In fact, the crypto ban may have a wholistic effect on the crypto and blockchain industry that has been growing in India for 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, 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 [the] Internet?”
Therefore, many crypto industry advocates in India believe that the country has a lot to lose when it comes to technological and economic growth. Mathew Chacko, a 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 them.”
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 [the] Internet in the 90s.”
“Would India have been a global software superpower if it had banned [the] 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?
Regulate, don’t ban in order to foster crypto innovation ✌️#IndiaWantsCrypto #IndiaWantsBitcoin https://t.co/LaVhQa2e8x
— Nischal (WazirX) ⚡️ (@NischalShetty) February 16, 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.
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