Is India’s Crypto Industry on the Brink of a Ban or a Boom?

Rumours of a second wave of efforts to ban cryptocurrency in India emerged late last week in an article that appeared in The Economic Times.

The article, which was entitled “With a law, India plans lasting ban on crypto,” contained information from a “senior government official” who apparently told the publication that “a note [presumably on crypto] has been moved (by the finance ministry) for inter-ministerial consultations.”

In other words, the Indian Ministry of Finance reportedly passed a draft cabinet note with the intention of setting up a legal framework that would ban Cryptocurrencies in India.

The Economic Times’ article claimed that the mysterious note was written as a reaction to the Supreme Court Ruling earlier this year that overturned a ban that the Reserve Bank of India (RBI) had placed on banks to prevent them from having working relationships with cryptocurrency exchanges.

While the Economic Times’ report didn’t reveal any specific information about what exactly the note contained, the article also claimed that in order to get a ban on the books, the government could return to a July 2019 draft law that proposed all forms of cryptocurrency would be banned, and that anyone caught holding them would face a fine and up to 10 years imprisonment.

CoinDesk reported that the note did seem analogous to a draft proposal bill published by a government panel chaired by former Economic Affairs Secretary Subhash Chandra Garg, entitled “Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019”.

Although the report recognizes Blockchain technology is an “important new and innovative technology,” the report also expresses “serious concern” that the use of cryptocurrencies in India seems to be “mushrooming”--which is to say, growing at an incredible pace.

"Reconsidering past bills is likely part of the process of forming clearer regulations."

However, shortly after the Economic Times’ report was published, doubts emerged over how serious the threat of a potential ban actually was.

Indeed, “the news that came out is based on a note, the contents of which are unclear,” said Nischal Shetty, founder and chief executive of Indian cryptocurrency exchange WazirX. “It’s not clear whether the finance ministry intends to work upon the old draconian crypto bill or whether they plan to work on bringing a new bill.”

Shetty added that even if the note was an indication that a proposal to ban the use of cryptocurrencies was going to begin making its way through India’s legislative system, it could take some time.

“I want to add that if at all it becomes a law, it has to go through the following stages first: 1. Form a committee; 2. Create a draft; 3. Industry consultation; [and] 4. Parliamentary approval,” he said, adding that therefore, “I don’t think there’s anything to worry about the note as of now.”

Still, there is some concern that if the government would return to its July 2019 draft law that initially proposed a ban on cryptocurrencies, the process could go more quickly than usual.

However, at the same time, a spokesperson from Indian cryptocurrency exchange CoinDCX told Finance Magnates that even if the bill is up for reconsideration, this could be a part of a normal course of events that takes place around building regulations.

“Reconsidering past bills is likely part of the process of forming clearer regulations around cryptocurrencies in India,” the spokesperson said. “Requiring inter-ministerial consultations, as well as possible consultations with the crypto industry, this may just be the first step in developing more clear and defined rules around crypto regulations in India.”

Therefore, CoinDCX also believes that there is “no reason to be alarmed, as there are no indicative signs of crypto being banned in India.”

”Crypto is one of the very few sectors that is hiring today” in India

Instead, the consensus among crypto industry insiders in India seems to be that the Indian crypto industry is not an asset that the Indian government can afford to lose--particularly after the spread of COVID-19.

“The crypto ecosystem and technology evolves quickly,” WazirX’s Nischal Shetty told Finance Magnates.

“We’re all well aware of the devastating impact that COVID-19 pandemic has had on our economy. Most industry sectors have laid off lakhs of people, and crypto is one of the very few sectors that is hiring today.”

Therefore, “it’s in India’s best interest to encourage such a fast-growing sector. There are more than 5 million crypto users in India, and I’m confident that our Prime Minister won’t let us down. With the right regulation, governments will be able to ensure AML and other guidelines are effectively followed. A blanket ban is not a solution, and I don't believe India will go for a sub-optimal solution here.”

CoinDCX has also observed monumental growth in India’s cryptocurrency industry, particularly after the Supreme Court overturned RBI’s ban earlier this year.

“The Indian crypto market has flourished since the lifting by the Supreme Court of the initial banking restrictions on crypto earlier this year,” CoinDCX told Finance Magnates.

“We have also seen record numbers in trading volumes and user adoption in the months which came after. This unprecedented growth within the Indian cryptocurrency sector was brought about by the new legitimacy that the ruling provided for cryptocurrencies, and is a sign that there is a future for crypto in India.”

Faith in India's crypto future

However, not everyone is so optimistic.

Ethan Taub, founder of Loanry, told Finance Magnates that he believes that a ban is likely to be put in place: “not only there are a number of corrupt officials in power but there is an unlikely scenario of cryptocurrencies having a number of conversion rates in order to apply to the norm of India's prices of goods and services,” he said.

However, Meher Apuroop, Administrative Manager at crypto asset management company Two Prime, told Finance Magnates that he believes that some of the key players in India’s government--in addition to the population at large--are pro-crypto.

“Both the public in general and the current ruling political classes are pro-crypto,” Apuroop told Finance Magnates, adding a claim that “I can confirm this personally as an advisor to one of the senior members of India's ruling party, [the] Bharatiya Janata Party, HRH Prakash Gurunath, who is also in the inner circle of Prime Minister Modi and Minister of Home Affairs Amit Shah, that Mr. Modi, personally, is in fact, very much a fan of Bitcoin.”

Personal preferences of officials aside, Apuroop also told Finance Magnates that instituting a complete ban is unlikely due to the logistical challenges that it would present.

“It has been proven to be technically impossible to impose such a complete blanket ban,” he said. For example, “P2P torrent downloading and porn sites have been officially banned in India for almost a decade, but it hardly put a dent in their usage by way of VPNs and proxies. Similarly, they would never be able to curb crypto.”

Indeed, “the current legislative class knows that when you put a ban on things deemed useful by the masses, its trade merely moves underground but its usage is never truly stopped, creating an unnecessary burden on law enforcement agencies,” Apuroop explained.

Therefore, Apuroop believes that “it’s better to allow it to happen through mainstream channels.”

Why does the 'blanket ban' concept keep reappearing in India?

But if a ban is indeed very unlikely to happen, why does the issue of a complete ban on cryptocurrencies in India keep rearing its head in the first place?

WazirX’s Nischal Schetty explained to Finance Magnates that “it stems due to lack of information or understanding around it.”

“[...] This has happened before with Internet, with taxi cab aggregators like Ola or Uber, or with Fintech apps when they were in early stage,” he added. “It’s upon us to educate our decision-makers and masses.”

Additionally, CoinDCX told Finance Magnates that “the journey towards a state of well-defined, clear regulations that protects the interests of investors, companies, and the industry at whole is a complex process requiring months, if not years, of carefully considering and deliberating what is best for the nation.”

And this process of deliberation involves dealing with fear and resistance from established systems: “just as it has come up in many major countries, the old bureaucracy resists things and systems that are new,” Two Prime’s Meher Apuroop explained.

“The banking system they regularly associated with, sees it as a threat to its existence instead of seeing it as a complementary entity.”

However, Apuroop--like CoinDCX and Nischal Shetty--believes that it will only be a matter of time before a healthy set of regulations are in place.

“Eventually they will end up accepting and adjusting the system to it as they did with the advent of the internet, mobile technology, digital banking and governance, app services like Uber and Amazon,” Apuroop told Finance Magnates.

Building a healthy regulatory future for crypto in India

And what could a set of healthy regulations look like for India?

It all begins with the legislative process: “we believe that regulators and the government of India will preserve the same open-minded stance that they had in the Supreme Court case,” CoinDCX told Finance Magnates.

“That is an ideal situation for the industry because the key decision-makers in the government were willing to engage with stakeholders and crypto industry leaders in open dialogue about the future of the industry. We are confident that a similarly communicative approach will be taken in making this decision this time round.”

WazirX’s Nischal Shetty also told Finance Magnates that there are already efforts to create regulations for the industry underway, albeit from outside the Indian government: “the global financial watchdog, FATF has issued guidelines which encourage regulation, and not a crypto ban,” he said.

Additionally, “the Internet and Mobile Association of India (IAMAI) is working on a code of conduct for cryptocurrency companies in India. This will lay out guidelines for KYC/AML and other regulatory-related features.”

More generally speaking, however, “when it comes to regulating crypto, I’m positive that India will follow the footsteps of developed countries like Japan, USA, UK, Australia, and more which have embraced crypto.”

Since COVID-19 struck, crypto has exploded in India

In the meantime, however, India’s crypto industry is continuing to grow: “our signups and daily volume have been rapidly increasing since the banking ban was removed,” Nischal said.

“Due to the lockdown in India, people have had more time on hand to read about crypto, and it leads them to WazirX to buy crypto for the first time. India is seeing a lot of new people entering the crypto ecosystem.”

Similarly, CoinDCX told Finance Magnates that “despite the Covid-19 pandemic, CoinDCX witnessed a 10x increase in user sign-ups and 47% growth in trading volumes in Q1 alone. National interest and curiosity in cryptocurrencies was at a new high, and the nationwide lockdown induced by the COVID-19 pandemic meant that Indians spent more time at home.”

What are your perceptions on the growth of India’s cryptocurrency industry? Let us know in the comments below.