Cryptocurrencies have exploded in popularity in recent years, with individual coins such as Bitcoin and Ethereum attaining a level of popular awareness unimaginable as recently as a few years ago.
While countries like Australia have embraced cryptocurrency, with millions of investors buying, selling and checking the Bitcoin trading price at CoinSpot and other digital exchanges, other countries have sought to restrict or regulate trade of and access to this emerging asset class.
Notably, 2021 has seen India take steps towards regulating and potentially banning the trade of cryptocurrencies. The world’s second most populous country, proposed laws before the Parliament of India could see all ‘private’ cryptocurrencies banned, restricting access for more than 1.3 billion people.
India’s perspective on Bitcoin and other cryptocurrencies
Listed in the agenda of the Lok Sabha – the lower house of the Parliament of India – published on the 29th of January is a reference to The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. According to the description of the bill, the bill will ‘prohibit all private cryptocurrencies in India’ while ‘[creating] a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India’.
While as of the beginning of February 2021 the bill is still in discussion and is yet to be made law, its announcement has been a cause of concern for traders and exchanges across the world. As a populous country with an ascendant middle class, India is seen as a key emerging market for cryptocurrency. As the government is yet to provide a definition of what it means by ‘private cryptocurrencies’ – noting that many cryptocurrencies such as Bitcoin are founded on the idea of public ownership and extra-territoriality – there is concern that a heavy-handed application of the law may see the end of all cryptocurrency trading in India.
However, it is worth noting that the description of the bill notes that the if made law, the bill will ‘[allow] for certain exceptions to promote the underlying technology of crytptocurrency and its uses’, potentially leaving the door open to other implementations of the technology.
History of cryptocurrency in India
Cryptocurrency has a chequered history in India, with several attempts at regulation mounted by various public bodies.
The current law can trace its genesis as far back as 2018, when an Indian government panel recommended banning all private cryptocurrencies within India, suggesting a penalty of 10 years of jail time for offenders.
That same year, India’s central bank – the Reserve Bank of India – issued a notice directing banks and other payment providers under its remit to cease dealing in cryptocurrencies, and to cease providing services that facilitate another party to deal with or settle in cryptocurrencies, providing three months’ notice to exit all affected relationships. This had the effect of severing all cryptocurrency exchanges in India from conventional banking networks, making it impossible for them to exchange Indian rupees and other traditional currencies for cryptocurrencies.
Subsequently, a legal challenge against the notice was mounted and – in March 2020 – was successful. At that time, the Supreme Court of India lifted the ban on cryptocurrency trading, basing their decision on the fact that the RBI did not successfully argue that the trading of cryptocurrencies adversely impacted the institutions under its control.
Simultaneously to this legal challenge, in 2019 the Parliament of India released a draft bill titled ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’, which states ‘No person shall mine, generate, hold, sell, deal in, issue, transfer, dispose of or use Cryptocurrency in the territory of India’.
The draft provides the government’s rationale for the banning of the cryptocurrencies, notably that cryptocurrencies can be used for the purposes of money-laundering, lack consumer protections and pose a ‘threat to the country’s financial stability’.
Response to the draft legislation and the inclusion of the new bill on the agenda of the Lok Sabha has been fierce, with exchanges starting a join initiative to convince Parliament to pursue regulation of cryptocurrencies instead of a complete prohibition.
With Bitcoin a feature of the global economic landscape, the concern is that India’s steps to ban cryptocurrency could have an outsized impact on the rest of the world.
Crypto fans are keeping their fingers crossed, hoping for positive developments relating to Bitcoin in India.