The government's stand on cryptocurrency has confused stakeholders in the industry, as some of the arguments forwarded by them, defeats the very purpose of the currency.
In response to a question in the Rajya Sabha, Finance Minister, Nirmala Sitharaman, said that while an Inter-Ministerial Committee will study the issues and launch a new crypto bill, all private cryptocurrencies, except any virtual currencies issued by the government, will be prohibited in India.
Last week, the government’s stand was said to be changing to regulate instead of imposing a ban on cryptocurrencies, but the possibility of an embargo has spooked many in the ecosystem.
Sitharaman reiterated the government’s position spelled out in its 2019 Union Budget speech, which had said, “...that the government does not consider cryptocurrencies legal tender or coins and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system."
However, many experts believe that a bill banning cryptocurrencies is unlikely. To be sure, the current proposal has not been cleared at the Union cabinet level and will not be tabled in the Parliament till it is cleared, following which it will also be referred to a parliamentary standing committee.
“I think leaders will ask, when no other country has banned cryptocurrencies so far, what justifies India banning it? What makes us different,” said Nischal Shetty, co-founder of crypto exchange WazirX.
He added, hopefully: “The draft bill released in 2019 was very crude in its definition of cryptocurrency, its classification, and other contents. Since it came out, the global regulatory landscape has changed tremendously. It seems that the current version of the bill is still in its early stages right now, but the government of India might be on the path to positive crypto regulations.”
However, only government-owned cryptocurrencies defeat the purpose of the asset, say experts. When bitcoin was launched, its objective was to have a decentralised currency that is not owned by any government or company, and hence cannot be tampered with.
“It defeats the purpose. A government owned cryptocurrency is an oxymoron, and it loses its attractiveness for investors,” said a senior executive at a fintech firm, requesting anonymity.
The industry also needs clarity on what existing bitcoin holders can do, and what could happen to their wealth. In the earliest draft of the bill, Clause 26 referred to holders of cryptocurrency being given 90 days to dispose of their holdings.
Said Ajeet Khurana, former CEO of Zebpay, a bitcoin trading firm: ``Cryptocurrency is one of the fastest growing sectors in fintech globally, and conducive regulations have been put in place in many countries of the world. At such a time for India to consider a draconian piece of legislation, will deprive our investors, entrepreneurs, engineers, and citizens at large, of participating in one of the greatest wealth creation opportunities of our time.”
“I hope that those in power are looking at what is happening in the world. I would strongly recommend coming up with a framework that addresses the government ‘s concerns. That is the key. We have to address the concerns, not throw out the baby with the bathwater,” he concluded.
Globally, governments have grown wary of this unregulated asset class, and like a lot of technologies, heavy regulation comes later and then evolves over time. For years, governments in the US, UK, France and other countries have been looking to crackdown on cryptocurrency fraud, with many convinced that it is a bubble and not a legitimate asset class. However, all developed countries have tried regulating it and removing bad actors instead of banning the technology or its applications.
“Cryptocurrency can’t be banned until and unless it is totally controlled by a single organization, which in case of bitcoin, Ethereum and other major crypto, is not possible. In my opinion, the government should look at regulating this industry comprehensively so that users can be secured from scams and other illegal schemes,” said Shivam Thakral, founder and CEO of BuyUCoin, a cryptocurrency exchange.
For him, “Digital Assets like Bitcoin are not controlled or issued by any single entity hence there is no single owner of Bitcoin. In essence, therefore, it's not possible to ban a 'piece of code'. I think a ban is unlikely, but if it does happen, I hope they will at least give some time for existing investors to exit their position in cryptocurrency to safeguard their interest.” That’s what a lot of stakeholders in the industry are fervently hoping for, in the eventuality of a ban being imposed.