Why India has reached a cryptocurrency crossroad

India's cryptocurrency sector is on edge as it awaits the introduction of new regulations. Like the government legislation plans that could prohibit payments using digital currencies such as Bitcoin, speculation about the rules has shook up many investors and industry insiders.

However, others remain hopeful that the government will not go as far as a ban and leave room for the sector to prosper by incorporating some much needed certainty.

“We do not believe that a blanket ban on cryptocurrency ecosystem it's likely to happen, ”says Edul Patel, CEO and co-founder of Mudrex, a cryptocurrency investment platform.

Bitcoin slipped around 8 percent to $ 40,237 in early Asia trading on September 21, 2021, falling to its lowest level since early August. Reuters

The cryptocurrency ecosystem is currently "a gray area" in India, says Patel.

"The cryptocurrency regulation bill is massive progress in the right direction," he says. “Lack of regulation had been an obstacle to the growth of this sphere in India for a long time. The regulation would allow clear guidelines that would allow the sector to flourish; investors looking to invest would also feel comfortable entering the sector. "

A short official description of the bill introduced before the current session of parliament, which began last week, stated that it "seeks to ban all private cryptocurrencies in India," but also "allows certain exceptions to promote underlying cryptocurrency technology. and its uses ”.

Furthermore, the bill aims to establish a framework for "the creation of the official digital currency to be issued by the Reserve Bank of India."

India's Finance Minister Nirmala Sitharaman said last week that the country had no plans to recognize Bitcoin as a currency and that the new bill was in the works. With the new regulation, the government can treat cryptocurrencies as a financial asset, while imposing an official ban on their use as legal tender, Bloomberg reported.

Local media, including Indian business newspaper mint, sources reported on Thursday that, they stated the following, instead of imposing a ban, the government could place cryptocurrencies under a regulatory framework, which would alleviate some of the concerns in the market.

As is the case in many countries, the Indian authorities are grappling with how to regulate cryptocurrencies. They have long expressed concern that virtual currencies could be used for illegal purposes, such as money laundering, or that they could threaten the stability of the country's financial system and pose a risk to investors.

But cryptocurrencies, including Bitcoin and Ethereum, have gained traction in India, particularly after the Supreme Court last year struck down a 2018 RBI order banning banks from transacting digital assets.

India is one of the largest markets for cryptocurrencies in the Asia region and one of the fastest growing in the world, growing 641 percent between July 2020 and June 2021, according to a report by the firm. Cryptocurrency Research Chainalysis.

There are as many as 20 million cryptocurrency investors in India, totaling 400 billion Indian rupees ($ 5.3 billion), according to industry estimates and reported by Reuters.

"Cryptocurrency is being widely adopted around the world as the high rate of return is attracting many investors towards investing in cryptocurrencies, despite being highly volatile and risky," says Hemang Jani, Head of Equity Strategy, brokerage and distribution in Mumbai. based at Motilal Oswal Financial Services.

India has 15 homegrown cryptocurrency exchanges, powered by the country's young and tech-savvy population, data from Motilal Oswal Financial Services shows.

“Investing in cryptocurrencies is not only limited to metropolitan areas, but is attracting a lot of interest from the young population in smaller cities,” says Jani.

While "there is a lot of uncertainty ... the government is making efforts to soon implement proper regulation regarding investment in crypto as it is rapidly becoming mainstream across India," he adds.

But when news broke last month that the proposed bill would be tabled in parliament, a wave of investors panicked and sold some of their cryptocurrency holdings. This resulted in a drop in digital currencies on Indian exchanges of up to 25 percent compared to other markets globally.

"A short-term panic sell was witnessed during the first two to three days of the crypto bill announcement, where prices plummeted on Indian exchanges, but prices stabilized shortly and are in sync with global markets as We talked, "says Shivam Thakral, co-founder and CEO of BuyUcoin, a Delhi-based cryptocurrency exchange that started operations in 2016.

Thakral is optimistic that the government will devise a system that will ultimately benefit the industry.

"We urgently need a positive regulatory framework to protect the interests of a large number of investors in India," says Thakral. "There is a wealth of talent ready for disruption in the crypto industry, legislators must ensure the growth of the crypto sector while protecting the interests of the average investor."

Full details of India's cryptocurrency bill have yet to be released and it will have to go through parliament for approval, so what will emerge in the final law is unknown.

The situation is "terrifying" for investors and a ban could mean "that we will not be able to convert our local currency into the purchase of any kind of cryptocurrency," says Raj Kapoor, founder of India Blockchain Alliance and cryptocurrency investor.

Ultimately, it remains to be seen what the government will ultimately decide and there are other regulatory solutions that would make much more sense than a ban, he says.

"I think that, although there is a lot of uncertainty, we are in a stage where the fear of a complete ban has been replaced and rightly by an anticipation of a rational policy where the interests of investors and the interests of the government can coexist without problems. ".

Cryptocurrency investor Srinivas Handadi owns virtual currencies that include Bitcoin, Ethereum, Cardano, and Polygon.

When cryptocurrencies crashed in India recently, Handadi says he "used the crash to buy more."

A ban would be "difficult" to enforce and the government is more likely to "start working with other countries to understand cryptocurrencies," he adds.

Despite the lack of clarity, foreign cryptocurrency companies have moved to capitalize on the Indian market.

"When OKEx entered the Indian market earlier this year, we were optimistic about India's strong policy framework," says Jay Hao, CEO of OKEx, the Seychelles-based cryptocurrency exchange. "Now we are finally witnessing how India's crypto policy is taking shape to ensure a better future for the entire crypto ecosystem in India."

Once regulation is in place, Hao expects more foreign currency to flow into India, which will help boost the sector and create jobs.

"The global crypto community will closely monitor the situation in India as we delve into the finer details of India's crypto law," says Hao.

Singapore-based cryptocurrency exchange Coinstore began operating in India last week, seemingly unfazed by the possibility of a crackdown.

"With nearly a quarter of our total active users coming from India, it made sense for us to expand into the market," Charles Tan, Coinstore's chief marketing officer, told Reuters.

Since plans to regulate the sector remain a work in progress, India also plans to have its own official digital currency.

Central banks in other countries, including China, are working on creating digital currencies and the RBI is expected to start testing India's digital currency next year.

Industry experts say this would be a welcome development.

“One important thing to keep in mind regarding central bank digital currencies is the fact that they are not cryptocurrencies. These are digital forms of fiat money, under the full control of central banks, ”says Mr. Patel.

Updated: December 5, 2021, 4:30 AM M.