Is Cryptocurrency Banned in India? How is that possible?
Despite the fact that the ability to trade Bitcoin and its peers freely and anonymously undermines the country's limits on the convertibility of its currency, the rupee, India is one of the world's fastest-growing markets for cryptocurrency trading. The central bank has made it clear that it intends to ban all private cryptocurrencies while developing an official digital currency. The government, on the other hand, is willing to make exceptions in order to promote blockchain technology. Among these competing objectives, Prime Minister Narendra Modi's administration is rushing to complete legislation in time for the year's final parliament session.
1. How popular is cryptocurrency in India?
It is one of the largest in the region and is rapidly expanding. According to an October report from Chainalysis, a crypto-analysis firm, the Indian market grew 641 percent between July 2020 and June 2021. Central and southern Asia as a whole was the fourth-largest crypto market studied, with over $572.5 billion in value received during that time period, accounting for 14 percent of global transaction value. During that time period, transfers worth more than $10 million accounted for 42 percent of transactions sent from India-based addresses, compared to 28 percent for Pakistan and 29 percent for Vietnam. This pointed to a more mature Indian market. At the same time, India, with a relatively young and tech-savvy population, was second only to Vietnam in the region in terms of growth in crypto adoption by retail investors.
2. What are the new rules?
India has had a tumultuous relationship with digital currencies, which exist in a legal limbo. In 2018, India effectively banned cryptocurrency transactions, but the Supreme Court overturned the ban in March 2020. Since then, calls for stricter rules have grown, fueled by fears that an unregulated environment will direct more domestic household savings toward volatile assets, leaving average savers vulnerable to a crash. The news that the government was preparing a bill sparked a sell-off on exchanges popular with Indian investors on November 24.
3. What are India's worries?
According to the Reserve Bank of India, they pose serious threats to the country's macroeconomic and financial stability. Because the Indian rupee is only partially convertible, the regulator has insight and control over who can access the country's markets. By definition, cryptocurrencies are intended to be freely traded and anonymous, denying authorities both oversight and the ability to tax transactions. Money laundering and terrorism financing have also been mentioned.
4. What is it likely that the bill will propose?
That is not clear. According to a brief description on the parliament's website, it "seeks to prohibit all private cryptocurrencies in India, but allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses." According to Bloomberg News, the government proposal may treat cryptocurrencies as a financial asset and impose a minimum investment amount, while officially prohibiting their use as legal tender. "We want to ensure that there is a window available for all kinds of experiments that will have to take place in the crypto world," said Finance Minister Nirmala Sitharaman. "It's not like we're going to look inward and say, 'We're not going to have any of this.' There will be a very precise position."
5. What is the timetable?
If the bill is to be passed this year, it must be finalised and approved by the cabinet before the end of the winter session of parliament on December 23. Separately, Modi's administration intends to assist the RBI in developing an official digital currency, as other central banks around the world, most notably China, are doing. The time frame for that appears to be much further in the future, and will likely come in stages.
6. Isn't India primarily a cash economy?
It certainly does. In 2016, the Modi government unexpectedly removed high-value bills from circulation in an effort to combat corruption, counterfeiting, and to push the country in a digital direction. This aided in propelling Paytm, the country's pioneer in online payments, to prominence. According to a McKinsey report, cash is back in vogue, with 89 percent of payments being made in fiat currency in 2020, up from 100 percent in 2010. (In addition, Paytm's much-touted stock listing had a disastrous debut on Nov. 21.) Despite this, digital retail payments have increased fivefold in the last two years, boosted by the pandemic, making it one of the world's most promising destinations for venture capital investors.
There will be no Crypto ban in India, according to reports, and SEBI will be brought in to regulate the sector.
The Indian government does not intend to ban cryptocurrencies in the country, but rather to regulate them as 'assets.' The Securities and Exchange Board of India (SEBI), the country's market watchdog, will be in charge, according to a cabinet note obtained by NDTV.
This is consistent with what Finance Minister Nirmala Sitharaman stated earlier this week about Bitcoin not being recognised as a payment currency in India. India, on the other hand, is developing its own central bank digital currency (CBDC), which will be governed and monitored by the Reserve Bank of India (RBI).
According to the note, citizens will be required to declare their crypto assets and keep them on Indian exchanges. They will no longer be permitted to store cryptocurrency on foreign exchanges or in personal wallets.
When the bill becomes law, people will have a certain amount of time to transfer their holdings in order to meet these requirements. Failure to do so could result in penalties ranging from 5 crore to 20 crore.
Furthermore, India intends to revise its Prevention of Money Laundering Act (PMLA) to include provisions for cryptocurrency activity. The government, according to Sitharaman, is closely monitoring the risks posed by cryptocurrencies. In November, Prime Minister Narendra Modi emphasised the volatile nature of digital tokens, urging democratic nations to work together to regulate the sector and protect the youth.
"The industry has been actively communicating with all stakeholders while keeping investor protection at the forefront," Ashish Singhal, co-chair of the Blockchain and Crypto Assets Council (BACC) and the founder and CEO of CoinSwitch Kuber, told Business Insider India.
What is the status of India's crypto bill?
The proposed laws for regulating cryptocurrencies and other aspects of the crypto sector in India, including decentralised autonomous organisations (DAOs), non-fungible tokens (NFTs), and the metaverse, are on the agenda of the Lok Sabha, the lower house of Parliament.
According to Sitharaman, the bill is awaiting Cabinet approval before it can be introduced to Members of Parliament (MPs).
"Even if the bill is 30-40% positive, investors — family offices, traditional VC firms — will put more money into India if something positive comes out," said Aritra Sarkhel, WazirX's head of public policy, governance issues, and content, during a sponsored webinar.
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