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Cryptocurrencies Bill: Why investors shouldn't press the panic button

Prices of Bitcoin and Ether are down. Even if cryptocurrencies are banned, an exit window may be given for investors.

November 24, 2021 / 01:06 PM IST

As the Indian parliament gets ready to introduce the cryptocurrency bill in the upcoming winter session, existing individual holders of cryptocurrencies have begun selling their holdings in panic. The price of Bitcoin has fallen nearly 18 percent in Rupee terms. The price of USD Tether (USTD), too, is down 17 percent.

Why this panic selling?

There is fear that the government may ban cryptocurrencies. But experts suggest caution.

“We have been saying this from the start that there is regulatory risk in cryptocurrencies. Wait for the regulations to be clear and then you can think of buying the coins. If the government decides to regulate cryptocurrencies in the upcoming winter session and put this asset class under, say the SEBI, then there would be some much-needed clarity,” says Rishabh Parakh, a chartered accountant and founder of NRP Capitals. As a mutual fund distributor, Parakh doesn’t recommend cryptocurrencies to his clients but he has invested in a few coins himself. He will hold onto them personally till the regulatory uncertainty gets resolved and avoid panic-selling.

Although the text of the agenda, as put up on the Lok Sabha website, doesn’t use the word ‘ban,’ it talks about three main aspects: the creation of an official digital currency, prohibition of private currencies and exception to the underlying technology on which cryptocurrencies are based upon. This, says Swapnil Pawar, Founder of ASQI Advisors (SEBI-Registered), doesn’t sound as bad as people had been anticipating. Besides, he points out that the agenda listed for the upcoming winter session is “exactly the same as it was listed earlier in January. But a lot of things have happened since then.”

Close

Pawar says the government appears to have been spooked by the numerous advertisements promoting cryptocurrencies on television during the recently-held Indian Premier League (IPL). Some ads even said coins would give some X percent more than fixed deposits, calling it a safe instrument and so on. It may have lured many unsuspecting investors. “That shouldn’t happen,” says Pawar adding optimistically that the regulations may try to control that.

Existing vs new investors

Most experts that Moneycontrol spoke to are advising against buying any cryptocurrencies at present. That is because the draft Bill on cryptocurrencies is barely a week or two from being taken up by the Parliament. Jaideep Reddy, Leader, Nishith Desai Associates says, “Holders and traders would have to wait for the text of any proposed Bill to suitably plan their affairs. As of now, the agenda item listed is the same as was done in January this year, and there is no information beyond a very brief description.”

Whatever the government decides on cryptocurrencies, many experts are saying that an outright ban looks unlikely. “They may not allow cryptocurrencies to be used as currencies, which is anyway not done in India, as yet. The government may do this in order to protect our own legal currency, the Rupee,” says Pawar. But he says that cryptocurrencies might be made an asset class and placed under a regulatory body, such as SEBI, which would then frame rules. This way, the taxation rules would also be clear.

At present, most chartered accountants are unclear on how to tax cryptocurrencies and so are treating gains under the ‘income from other sources’ head and taxing them as per the individual’s slab.

Parakh and Pawar are clear that in the worst case scenario, if the government bans cryptocurrencies, then it will also allow people a window of a few months to sell them. “What is extremely unlikely though is that the government would say that it is illegal to hold cryptocurrencies. Even Supreme Court has clarified that,” says Pawar.

Sajai Singh, Partner, JSA Associate and Solicitors agrees: “Whatever the Government decides, it will take into account current holdings of people and not jeopardise the same. It is the investor and his hard-earned money that is paramount in the Government’s mind. They want to protect both, so one can expect current legitimate holders to be protected in any upcoming framework.”

What should you do?

The parliament’s winter session is to begin in a few days and we might see some sort of a cryptocurrency regulation by the end of this year. Or, at least a guidance as to whether it would be classified as an alternative currency (this looks highly unlikely) or an investment asset.

Pawar says that some smart investors might take advantage of this and buy on dips. But it’s best to stay away for now.

Existing investors should ideally hold on to their coins and avoid reacting in panic. It’s tough to predict what laws the government would frame and what it would or wouldn’t allow.

“The very fact that the government is exploring a regulation around cryptos is a step forward as it is recognizing the technological scope in traditional government arenas,” says Harini Subramani, advocate and founder, HS Law & Associates. Her interpretation and the wording of the Bill’s agenda at the government level also mean one more possibility: Invesco Blockchain Fund – whose launch got pushed back last week pending cryptocurrency regulations – may see the light of the day soon.
Kayezad E Adajania heads the personal finance bureau at Moneycontrol. He has been covering mutual funds and personal finance for the past two decades, having worked in Mint and Outlook Money magazine. Kayezad was the founding member of Mint’s personal finance team when it was set up in 2009.
first published: Nov 24, 2021 12:37 pm

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