With the Reserve Bank of India (RBI) planning to issue its own digital currency soon, the Government of India plans to restrict the supply of Cryptocurrencies in the country.
This comes as a huge blow to the industry after the Supreme Court removed the ban on banks providing services to crypto companies earlier imposed by the RBI.
For a long time in India, Cryptocurrency was neither prohibited nor legally permitted. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 has not been raised in the Parliament so far, nor has it been mentioned in the ongoing Union Budget session. However, the bill encourages blockchain technology and cryptography for different purposes in the financial services industry.
What will be the Consequences of the Upcoming bill if it is Passed?
- Close to 7 million Indian investors who hold more than $1 billion in digital assets will be affected directly, making their holding valueless.
- Many cryptocurrency startups, consultants, and exchanges may be forced to shut down their operations, leading to high unemployment.
- Foreign venture capitalists who have bet big on cryptocurrency businesses may decide to withdraw all their investments.
- Digital payments may expand with the issue of a central bank digital currency (CBDC). According to the Union Budget of 2021, Rs 1500 crores has been announced to promote online payments and reduce cash circulation in the country.
- It can lead to a lot of centralization of the money supply as Bitcoin and other cryptos are completely decentralized compared to a digital currency issued by an authority.
- It might trigger panic selling by investors in exchanges to reduce their investment exposure to digital currency assets.
Some Suggestions from the Industry are
- It is better to bring the Cryptocurrency industry under the control of authorities like the SEBI (Securities and Exchange Board of India) instead of opting for an outright ban on trading Cryptocurrencies.
- Blockchain technology can be used in many industries leading to Cryptocurrencies being viewed as a viable asset.
- Amendments can be made in the Income Tax and GST laws regarding tax laws for Cryptocurrencies, especially in the long-term and short-term crypto gains.
- Cryptocurrencies should be recognized as tradable commodities, just like financial instruments promoting them as an investment avenue.
- Changes can be made in the Foreign Exchange Management Act (FEMA) so that crypto exchanges can deal in foreign exchange without any restrictions.
- Favorable regulations will yield more benefits for the industry and put India on par with developed countries like the USA and China.
- The meaning of Securities mentioned in the Securities Contracts (Regulation) Act 1956 must be broadened to include crypto assets and Initial Exchange Offerings (IEO’s).
- The 2017 ban on importing ASIC-based machines or state-of-the-art application-specific integrated circuits must be revoked as it discourages Bitcoin mining in the country.
- Most of the Cryptocurrency exchanges in India comply with KYC/AML regulations to prevent illegal activities on their trading platforms.
- Profits made from digital currencies can be viewed as income from other sources, and gains from regular trading can be considered as income from speculative business.
- Even if Cryptocurrency is banned as a method of payment, it must at least be considered as a utility asset so that investors do not lose their money.
- Both cryptocurrencies and digital government currency can exist together without affecting each other.
The future of a fast-growing industry is at stake in India now. Crypto trading and transactions using digital currencies reached all-time highs in 2020. A blanket ban will move the sector backward. Regulations will remove the ambiguity for exchanges to stay in compliance with the law.
Cryptocurrencies can promote more financial inclusion and give users more control over their assets. The government can discuss these sensitive issues with the stakeholders of the industry instead of passing these impactful bills without any consultation.