India plans to introduce a new law to ban Cryptocurrency trading. This will place India out of step with other Asian economies which have chosen to regulate the fledgling market. The bill is expected to be discussed shortly by the federal cabinet before it is sent to the parliament.
The federal government will be encouraging blockchain, which is the technology underlying cryptocurrencies. But it is not keen on cryptocurrency trading. India’s finance ministry spokesman did not respond to calls and messages seeking comments.
The Indian central bank in the year 2018 had banned crypto transactions after a string of frauds. This was in the months following Prime Minister Narendra Modi’s sudden decision to ban 80% of the nation’s currency. Cryptocurrency exchanges then responded with a lawsuit in the Supreme Court in September 2018. They won respite in March 2020.
The win in court prompted an almost 450% surge in trading in just two months since March 2020. This revived the concerns as more Indians risk savings amid job losses and an economic slowdown worsened by the coronavirus pandemic. Bitcoin marketplace Paxful reported 883% growth between January 2020 to May 2020 from around 2.2 million dollars to 22.1 million dollars. A Mumbai based crypto exchanger grew 400% in March 2020 and 270% in April 2020 on a month-on-month basis.
Regulating Cryptocurrency Trading
India’s decision will be crucial as more Asian nation countries weigh the pros and cons of virtual currencies. China, which banned initial coin offerings and virtual currencies in the year 2017, recently allowed Bitcoin trading as virtual property. China is also planning its own central bank digital currency. Singapore and South Korea both regulate cryptocurrency trades.
Niti Aayog from the federal government is exploring possible uses of blockchains structures that can publicly store transactional records or blocks in several networked databases. This will help in managing land records, pharmaceutical drug supply chains, or records of educational certificates. While there is a plan for virtual currency, the government is averse to the idea of cryptocurrency trade
According to data collected, a renewed trading ban could affect more than 1.7 million Indians who are trading in digital assets and a rising number of companies setting up platforms for the trade. According to chief executive officer Ashish Singhal, it will also affect companies like Singapore-based CoinSwitch, which added 200,000 users after starting India operations in June and was reporting volumes of about 200-300 million dollars.
About half the users of the CoinSwitch which allows virtual currency purchases in Indian rupees are less than 25-years old. Singal further said that state-owned banks are reluctant to work with companies given the lack of regulatory clarity. He added that because there is no legal recourse, there is the risk of attracting fly-by-night, negative players who are trying to cheat investors.
According to Sanjay Khan, Partner, Khaitan & Co, a New Delhi-based lawyer Instead of a ban, India needs a regulatory framework to protect uninformed retail consumers. This is to ensure adequate oversight of the government and the RBI over cryptocurrency businesses. India will benefit from such a regulation to attract cryptocurrency investors and businesses.