The Indian government shocked the entire crypto industry earlier this year when it announced that it would ban cryptocurrencies from circulation in the country.
When the announcement was made, many began sharing opinions and explaining why the country would regret this decision - especially just a year removed from a landmark case making digital assets legal. However, some reports have explained that the government could now be looking to overturn its ruling.
Rumblings Fuel Optimism
The first report concerning this change of heart came in the middle of May. At the time, The Economic Times reported that the government was reconsidering its stance on digital assets. Instead of banning them, the government was reportedly looking to form a new regulatory panel to govern their use.
As the report explained, three government sources confirmed the formation of a panel of experts. Among other things, the panel will be responsible for developing regulatory guidelines concerning cryptocurrency trading in India. The panel will also look into ways to use blockchain technology for the general technological advancement of the Indian people. Digital asset regulations will differ from those of the country’s fiat currency, and the formed committee would also consult with the Reserve Bank on developing its digital rupee.
Anurag Thakur, India’s Minister for State for Finance and Corporate Affairs, might be considered to join the committee. Thakur and current Finance Minister Nirmala Sithaaraman have stated the government’s desire to regulate cryptocurrencies in the country instead of banning them outrightly.
The Reserve Bank Steps In
Despite the proliferation of reports like these, several top banks in India had already begun distancing themselves from cryptocurrencies. According to reports, several top banks - including HDFC Bank and the State Bank of India - had begun cautioning their customers against dealing in cryptocurrencies. Many of them had stated a circular from the Reserve Bank of India (RBI), which directed all banks to cease operating with cryptocurrencies in any form.
The circular, published in 2018, was rendered null and void in 2020 after a landmark ruling from the Supreme Court.
With these reports circulating, the Reserve Bank itself published a circular last month, explaining that the ruling itself was no longer valid. In part, the circular read:
“Such references to the above circular by banks/ regulated entities are not in order as this circular was set aside by the Hon’ble Supreme Court on March 4, 2020 in the matter of Writ Petition.”
The Reserve Bank did explain that all regulated financial institutions will still need to ensure proper customer due diligence - especially when it comes to Anti-Money Laundering and Know Your Customer standards - all under the Prevention of Money Laundering Act of 2002.
The Tide is Shifting
With increasing signs of a policy downturn, many immediately gave their opinions to support the coming wave. Nandan Nilekani, the co-founder and chairman of multinational IT firm Infosys, told the Financial Times that restrictive policies would only result in India missing significant opportunities. While the tech mogul also criticized cryptocurrencies for being volatile and energy-intensive, he explained that an outright ban wouldn’t solve anything.
“Just like you have some of your assets in gold or real estate, you can have some of your assets in crypto. I think there’s a role for crypto as a stored value but certainly not in a transactional sense,” he said in part.
Moving into June, additional reports have given credence to a possible ban overturn. Just last week, The New Indian Express reported that the Indian government’s hostile stance towards digital assets was shifting. Quoting sources close to the government, the news medium explained that authorities have abandoned their plans to ban Bitcoin and were now looking towards classifying cryptocurrencies as an asset class.
The report explained that the Securities and Exchange Board of India will oversee crypto regulations in the country, and will work with the finance ministry. Also, Parliament will debate a crypto regulatory regime during its Monsoon Season - which starts in July.
There has also been an expert panel, which is now studying protocols for crypto regulation. Its findings will go a long way in shaping the Parliament’s debates.
Exchanges Ready to Pounce
With all of this, several exchanges have been standing ready to act. Reuters reported last week that some top names are eager to capture the country’s crypto market and are waiting for policy changes to act immediately. The report highlighted that Bitfinex, Kraken, and KuCoin are all looking into setting up offices in India.
Binance already has a presence in India, with the exchange acquiring local crypto giant WazirX in 201. As Reuters explained, the exchanges above could opt for a similar strategy and simply acquire local exchanges. Barring that, they could pursue proper alliances with any local names to bolster their presence.
Currently, the objective is to understand how best to operate in India. Once the exchanges get this knowledge, they will be able to navigate regulations and grow their market share. For now, seeing how the regulations could possibly change will be a significant point of concern for these exchanges.