India is one of the world’s largest countries and financial markets. With an estimated 1.3 billion people, the country remains a hotspot for any company or any concept that hopes to enjoy global relevance and domination.
Sadly, the country’s stance towards cryptocurrencies hasn’t always been favorable. Recently, the government has laid the groundwork for a complete crypto ban that will eradicate digital assets in the country and essentially lock citizens from their ability to work with them.
Crypto bans aren’t entirely new. China has essentially implemented a ban on digital assets as well. However, India’s case is especially peculiar because of the rollercoaster journey that it has taken. The country has been working under a crypto ban for years now, and while things took a bit of a hiatus at some point, it is back to square one for industry players.
For the sake of recording history, it is worth understanding where this journey started and how things could play going forward.
A Love Letter from the Reserve Bank
India’s experience with crypto bans started primarily in 2018. At the time, cryptocurrencies had a reputation for being overly volatile and speculative. The Reserve Bank of India (RBI) ate into the reports and decided to ban cryptocurrencies. In a now-infamous circular, the Reserve Bank ordered all commercial banks in India to refrain from doing business with individuals and companies involved with cryptocurrencies.
The circular was a bombshell on many fronts. It set off a Bitcoin price plunge, with investors running for the hills amid speculation that other major banking regulators could take similar stances. It also affected the Indian crypto industry for years. Companies had to choose between leaving the country or finding innovative ways around the ban to continue operating.
As for the prospect of working with local banks, that dream was dead. The status quo remained that way for years, with no hope seeming to be available.
Two years after the blanket ban had been live, the Internet & Mobile Association of India (IAMAI) — a non-profit technology development organization - sued the Reserve Bank over it. The suit rested on the fact that a crypto ban was not in the Reserve Bank’s jurisdiction, primarily since digital assets didn’t originate from the country.
In March 2020, Live Law reported that the Supreme Court had overturned the blanket ban. The ruling was a landmark one, signaling that crypto companies were free to access banking services and operate in the country. At the same time, investors were now free to back crypto firms in the country, and more people could easily access digital assets.
Problems Arise, and New Rumors
Despite the reversal, the Indian crypto space was still caught in a bind. For one, companies reported that they still didn’t have access to banking services. It definitely didn’t help that the Reserve Bank didn’t put out a statement endorsing cryptocurrencies or companies in the industry.
Many claimed that banks still restricted them and prevented them from accessing services, ostensibly out of fear of the Reserve Bank.
Even worse, rumors began flying that legislators were gearing up for a more stringent crypto ban. In the middle of 2020, the Economic Times reported that the Ministry of Finance had proposed a second blanket ban. Per the report, the ban would be more than just a restriction from the Reserve Bank - authorities would enshrine it in India’s constitution, making crypto trading and ownership a crime in the country. Violators could face criminal charges and possible jail terms.
Despite the rumors, Subramanian Swamy, a member of the ruling party at Rajya Sabha, India’s upper house of parliament, told industry news sources that there was no truth to them. He explained that the parliament wasn’t discussing any crypto ban, and that all reports were merely clickbait.
The New Ban Comes
Amid a stabilizing market, the news of the subsequent ban hit the ground earlier this year. In January 2021, a bulletin of the Lok Sabha - India’s lower parliamentary house - confirmed that the government had introduced legislation to ban cryptocurrencies. Titled the Cryptocurrency and Regulation of Official Digital Currency Bill, the new legislation seeks to ban private cryptocurrency use and trade, while the Reserve Bank looks into developing a Central Bank Digital Currency (CBDC)
The Reserve Bank also published a booklet on payments, explaining the need for a government-backed digital asset and its desire to research one. If it does find enough use for a CBDC, it will set the groundwork for developing such an asset.
Just like that, everyone was off to the races. More details have come out since then, with the Economic Times reporting that the Securities Board of India is looking to disqualify Initial Public Offering (IPO) promoters from participating in the capital market if they hold any cryptocurrencies.
Hope Isn’t Lost Yet
While things look dire, it is worth noting that the Indian authorities aren’t being bashful in their approach. Nirmala Sitharaman, the country’s finance minister, said in an interview from March that they won’t be looking to shut off all crypto-based innovations in the country simply. In part, she told India Today:
“From our side, we are very clear that we are not shutting all options off. We will allow certain windows for people to use, so that experiments on the blockchain, Bitcoins or cryptocurrency [...] and fintech, which depend on such experiments, will have that window available for them. We are not going to shut it off.”
At the same time, crypto industry insiders have begun lobbying for favor from the government. The Economic Times reported last month that Nischal Shetty, the head of local exchange WazirX, had joined other stakeholders to convince the government to be more lenient in its crypto regulations.
Under the Blockchain and Crypto Council, the professionals have drafted a presentation to note their recommendations vis-à-vis crypto regulations. The framework includes measures to address criminal activities and possible threats that digital assets might pose to the rupee’s monetary sovereignty.
For now, it’s a case of watching and seeing how the government responds.