India’s cryptocurrency industry has been dealt a fresh blow after reports suggested that the government is planning to bring in a law that bans the trade of digital assets.
It comes months after the country’s Supreme Court overturned controversial restrictions that prohibited banks from dealing with exchanges. Those measures left many trading platforms unable to operate, with some closing their doors for good.
According to a Moneycontrol report on Aug. 5, the government has been holding consultations with several ministries, as well as the Reserve Bank of India, to develop a framework for a law that would formally end crypto trading nationwide.
“After inter-ministerial consultations, it (the note) would be presented to the cabinet for approval. Once parliament resumes for the session, we are hoping to get it ratified,” a government official told the website.
That day, the crypto exchange giant OKEx announced it had launched a peer-to-peer trading platform in India that allows local consumers to buy cryptocurrencies with rupees, all while paying zero transaction fees.
In a quote that certainly didn’t age well, the company’s news release said: “Among India’s staggering population of 1.3 billion, currently an estimated 5 million people own digital currencies, with huge opportunity for growth in the short term.”
“The recent lifting of a cryptocurrency ban by the Reserve Bank of India on March 4 led to a dramatic shift in momentum for the Indian market, with volumes on local exchanges rebounding across the board after a stagnant few months.”
A second attempt
The Indian government’s wariness about cryptocurrencies dates back to 2017, when a panel was established to investigate the digital assets ecosystem.
Although the government was encouraged to start exploring the possibility of launching its own central bank digital currency (CBDC), that panel recommended that all private cryptocurrencies—including Bitcoin and Ether—should be banned.
In proposals that sent shockwaves through the crypto world at that time, it was proposed that those caught dealing with these digital assets should face up to 10 years in prison.
Pushing through India’s anti-crypto stance ultimately fell to the RBI, which stopped financial institutions from providing services related to cryptocurrencies. Even though this was thrown out by the Supreme Court in March, many Indian banks were slow to start resuming services—seemingly waiting for further clarity from the government.
It seems Narendra Modi’s administration is looking to introduce measures that are more watertight and permanent than those seen before, with the anonymous official telling Moneycontrol:
“There was a view in the government that banning it through a law would be more binding. It will clearly define the illegality of the trade.”
Cryptocurrency transactions in India have grown in popularity during the coronavirus pandemic. According to data from CoinDCX included in the OKEx news release, BTC/INR trading volumes increased 1,031.4% after the ban was lifted back in April. Speaking to Moneycontrol, industry insiders expressed exasperation at the government’s failure to devise a regulatory mechanism that would have generated much-needed revenue as a result of the millions of dollars in trading taking place every week.
Instead, India is taking the nuclear option by banning activity altogether—and estimates suggest this approach could prove costly. Crypto and blockchain analytics firm Crebaco Global Inc told AMBCrypto last August that the country stood to lose market share worth $13 billion if a ban was enacted. Crypto Kanoon, a local news service, warned that thousands of coders, writers, exchanges, blockchain professionals and legal consultants could be made jobless.
The renewed push to ban digital assets is also bad news for CoinDCX, one of the country’s biggest crypto companies. Only last month, Modern Consensus reported on how the exchange had received a strategic investment of $2.5 million from Coinbase Ventures and Polychain Capital—and was preparing to embark on an ambitious drive to introduce 50 million Indian consumers to digital assets for the first time.
CoinDCX recently launched a platform called DCX Learn as part of a $1.3 million initiative to educate people about digital assets through guides, articles, online courses, interactive lectures and quizzes—complete with advice on how to protect their crypto from malicious actors.
Aside from speculating on potential rises in the value of Bitcoin and Ether, a recent report by OKEx and the crypto research platform Coinpaprika suggested that digital assets could transform India’s remittance industry, which often charges punishing fees to migrant workers. As the report explained: “India is the world’s largest population outflow country, with more than 17 million immigrants in 2019, closely followed by Mexico and China.”