A complete ban will force self-regulated exchanges to shut down, said Nischal Shetty, co-founder & CEO of WazirX, one of India’s largest cryptocurrency bourses. “It will also eliminate possible data avenues for the government and regulators around the crypto ecosystem. A ban would lead to increased liquidity for the black market and push people to transact in cash for buying and selling Bitcoin,” Shetty told TOI.
The government should look at regulating cryptocurrencies instead of a complete ban, investors and cyber law experts told TOI. Indian investors, however, will not face prosecution for prior actions if a ban is implemented. The value of a single Bitcoin was at $58,000 on Sunday and its market capitalisation was $1.1 trillion — which would make Bitcoin the sixth most valued stock had it been a company.
Shetty said a ban is not a solution and that is primarily why the US, the UK and Singapore are working on regulation. “There are over 340 crypto startups in India. A ban will erode wealth and also prevent India from participating in this innovation,” Shetty added.
In March 2020, the SC had quashed a 2018 RBI circular, which restricted investments in cryptocurrencies. Since then the popularity and value of Bitcoin, the oldest and largest cryptocurrency, has risen exponentially, driven by a crash in interest rates globally.
Bitcoin attracted institutional investors looking for higher returns and a hedge against inflation. This led to an over 400% surge in its price in a year. Tech-savvy millennials too rode the wave, encouraged by popular voices like Tesla CEO Elon Musk and Twitter CEO Jack Dorsey.
Supreme court advocate and cyber law expert N S Nappinai told TOI the issue is about permitting or banning crypto ‘assets’ — as terming them as ‘currencies’ may be misleading. According to her, the government must take a decision after evaluating its concerns, and check if regulation will be better suited.
“Even a regulatory framework was considered restrictive but it ensures protection for all — be it the government, an entrepreneur or an investor. The certainty, transparency and protection that regulation provides make it the preferred option,” Nappinai said.
Pavan Duggal, also an SC advocate and a cyber law expert, said that India should tax the digital assets. “A ban is not likely to meet with success due to the nature of the internet. It will be better to come up with detailed parameters to regulate and benefit from the crypto ecosystem,” Duggal said.
Global account head of UK-based fintech firm Paysend Abhishek Tripathi said that India has a lot to lose if there is a ban. “To the government, it is just a volatile asset but the possible use cases as we go further are immense. There is a need to put some regulations based on the theory of manipulation but not a ban.”
Delhi-based IT professional Ashish Jain, who started investing in Bitcoin nearly 10 years ago, said that the government should work on building a framework and infrastructure for cryptocurrencies.
While a ban may result in monetary losses for investors and traders, they are not expected to be caught on the wrong side of the law. “You cannot be prosecuted for a criminal provision under the new law for acts done before it came into effect,” SC advocate Nappinai said, adding that crypto was always a risk factor and only those with high-risk appetite ventured forth, be it as entrepreneurs or as investors.
Bitcoin investor Jain, who runs a YouTube channel on crypto mining, gets a lot of calls from youngsters, many of them unemployed, seeking guidance on crypto. “They have no clue about the technical aspects and are even ready to borrow money. Crypto is not only highly volatile but also requires a lot of capital,” Jain said.
BitcoinIndia, a forum on online discussion platform Reddit, has compiled an FAQ to address the legal aspects. There are also posts where users have suggested ‘newbies’ to transfer their crypto assets to foreign exchanges like Binance if a ban is announced. Some users also fear they might be tracked down later as they have submitted KYC documents to local exchanges.
Bitcoin, being a decentralised digital currency, has also been criticised as it can facilitate cross-border illegal trade. However, WazirX’s Shetty said that regulation will help eliminate bad actors. SC advocate Nappinai added that cases involving crypto Ponzi schemes and hacking have been dealt with using existing laws.
While critics have termed Bitcoin a “dangerous bubble”, equating betting on Bitcoin with betting on the collapse of the formal economy, enthusiasts like US-based Samson Mow, chief strategy officer of blockchain technology firm Blockstream, have said, “Countries can’t ban Bitcoin, they can only ban themselves from the global economy”.
Several analysts and fintech players have also voiced their opinion on online platforms against the proposed ban. Balaji Srinivasan, former CTO of US-based digital currency exchange Coinbase wrote in a blog last week, “A ‘ban’ would cost India trillions over the long term as the financial internet grows outside the country.
Instead of a ‘ban’, India should legalise crypto, take advantage of its remittance-friendly properties, and resolve potential misuse by extending the Foreign Exchange Management Act (FEMA) to treat cryptocurrencies as foreign assets. Because a ban would revert India to the failed pre-liberalisation era when foreign assets were suspect and trade was inhibited.”
While Berstein director (financials & fintech) Gautam Chhugani tweeted on Sunday that India should make GIFT City an offshore crypto hub as the ring-fencing will address regulatory concerns while giving investors and entrepreneurs freedom.