Despite being a center of tech innovation, India’s hostile attitude towards digital assets could cause it to miss a “trillion-dollar opportunity.”
The cryptocurrency industry is booming in India, with trade volumes soaring, more than 300 crypto businesses hiring and up to 10 million investors pouring about $1.5 billion in cryptocurrencies.
This doesn’t change the fact that the world’s second most-populous nation is still well behind where it could and should be. The banking ban stunted the sector’s growth at a time when the industry went from a niche market to a global economic game changer.
Balaji Srinivasan, a former Andreessen Horowitz VC general partner and Coinbase CTO, recently warned that India will “miss out on a trillion-dollar opportunity” by banning crypto.
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Crypto India Grows
Crypto exchange Unocoin raised $5 million from investors including Tim Draper in October, while CoinDCX raised $14 million in a third venture round led by Block.one in late December. CoinSwitch raised $14.7 million in a January round led by Ribbet Capital, and $25 million in April from Tiger Global. In March, Dubai-based FD7 ventures announced a $250 million fund based in Bangalore.
Several crypto banks have opened physical locations this year, with Unicas’ Jaipur, Gujarat and Delhi branches planned as the first of 100 by the end of 2022.
Is Cryptocurrency Legal in India?
Currently, it’s most accurate to say cryptocurrency isn’t illegal.
While the government gave notice that it was looking at banning cryptocurrencies in January, the issue came to a head — publicly, at any rate — on Mar. 14. That day, an unnamed “senior official” told Reuters that the complete ban would be included in The Cryptocurrency and Regulation of Official Digital Currency Bill 2021.
It will reportedly include a three to six-month grace period to sell off holdings and wind down mining and other related businesses. After that fines would be levied.
However, that very day, Indian Finance Minister Nirmala Sitharaman told the India Today Conclave that — while regulations were coming — the government would not “shut off all cryptocurrency” as it recognized that many financial technology (fintech) companies need to experiment with blockchain technology.
The finance ministry “will allow certain windows for people to do experiments on blockchain, bitcoins, or cryptocurrency,” she said, according to Business Standard.
In mid-April, Decrypt noted that a junior minister, Anurag Thakur, the Indian Minister of State for Finance and Corporate Affairs, said that the pending legislation would protect investors against price volatility in the cryptocurrency market — something some industry insiders took as a sign that a regulatory framework is coming, rather than a full ban.
Keep Bitcoin Legal
India’s crypto industry has been pushing hard for such a regulatory framework, with the Internet and Mobile Association of India’s Blockchain and Crypto Assets Council (BACC) welcoming the government’s decision to make it mandatory for Indian companies to disclose past and future investments in cryptocurrencies.
The council — whose members include Bitex, CoinDCX, Paxful, Unocoin and WazirX — saw the decision as a sign that the government is moving towards an acceptance of cryptocurrencies that will help the industry to grow.
“It is in a positive direction and would bring transparency, legitimacy, and structure to the industry,” said Sohail Merchan, CEO of BACC member Pocketbits.
RBI Pushes Crypto Ban in India
In February, RBI Governor Shaktikanta Das said the bank has “major concerns from the financial stability angle.” That led WazirX CEO Nischal Shetty to argue that regulation would be more effective than a ban in ensuring financial stability.
Would the Ban Backfire?
That’s a sentiment that Srinivasan echoed, telling The Cap Table that banning Bitcoin would drive the industry underground, forcing the government to take legal action against “otherwise law-abiding citizens who are some of the smartest in the country.”
The Electronic Frontier Foundation agreed, warning that the bill “would require draconian oversight and control to enforce,” while the Internet and Mobile Association of India (IAMAI) warned that it would push Indian crypto buyers to “illicit” sites with little in the way of consumer protection.
Blockchain Is Welcome
However, the Indian government is very interested in the potential uses of blockchain technology in a wide variety of fields.
Industry is also getting in on the action. In March 2021, for example, North Delhi’s Tata Power DDL utility partnered with Australia’s Power Ledger and the India Smart Grid Forum (ISGF) on a blockchain-based peer-to-peer solar energy trading platform. It follows a similar, successful project in Uttar Pradesh aimed at convincing regulators to allow P2P electricity trading, according to ISGF President Reji Kumar Pillai.
“Uncertainty” is the watchword for India’s cryptocurrency sector right now — and given how it’s taken a much harsher stance against digital assets than other major economies, the world will be watching to see how any potential ban is enforced and received.