Crypto conundrum: Digital Currency future seems vague in India

Even as the world's largest and most popular cryptocurrency is making headway, the question of regulation looms large in India. At present, the meteoric rise of Bitcoins can be attributed to continued interest by major corporates. Now, more and more small and big investors around the world are attracted to cryptocurrency owing to its potential gains.

Recently, the price of Bitcoin crossed the record high of $54,000. The historic feat was achieved after a leading electric carmaker announced that it bought $1.5 billion in Bitcoin and would accept the currency as the mode of payment. The steep rise in the value of the virtual currency has made it a hot topic among analysts and investors all over the world.

While investors are riding the waves of this global phenomenon, India continues to be in a quagmire. There have been rumours of the government planning to ban all private virtual currencies and launching its official digital currency. These developments are raising many pertinent questions. However, legal experts and investors
unanimously agree that banning is not the solution.

Push for regulation
Many think that a sweeping step like imposing a ban would cost a huge loss of investment to India. Regardless of the standstill on regulations, many Indian crypto start-ups have collectively raised millions from foreign investors.

Experts believe that the absence of regulation will spell catastrophe as it prompts the rise of black market. "It is very sad to see the lens with which Indian regulators are looking at a noble technology that can only bring transparency and align people to contribute positively at a scale. As I recommended to the finance ministry, we need to establish light-touch regulations to let the innovators grow, while at the same time, prevent the interests of the consumers. Education and awareness campaigns are already going a long way. We can treat all cryptocurrencies as foreign currencies and regulate it under existing foreign exchange management policy. Allow it to happen till a certain limit (250K $as remittance under FEMA) until we can figure how to weed out the bad actors and promote the good ones," says Akshay Aggarwal, managing trustee, Blockchained India.

Aggarwal rues the immature handling of innovation as it has led to the loss of global innovators from India. "We have to be open and learn from our past mistakes, the regulatory process has to evolve. Regulators need to give confidence to the local innovators. Instead of banning the industry, invest resources to understand the industry further, get new talent to suggest ways to deal with problems and introduce capacity-building measures before it gets too late. Support them with government funds and lay a cosy path for those working in the crypto trenches," adds Aggarwal.

Future of cryptocurrency
In the absence of regulation and recognition by the Government of India, the future of cryptocurrencies seems to be in a disarray. The Central Government recently revealed that it will introduce a new bill on cryptocurrencies. There is no information so far on the contents of The Cryptocurrency and Regulation of Official Digital Currency Bill 2021.

In 2018, the RBI had banned banks from conducting transactions related to cryptocurrency. However, in March 2020, the Supreme Court of India lifted the ban, and cryptocurrencies have been operational in India ever since.

Speculations are rife that the new cryptocurrency bill might impact existing investors who are investing in private digital currencies like Bitcoin. This can be a possibility if the Centre explores and considers the recommendations made by the Inter-Ministerial Committee (IMC) on virtual currencies.

Earlier, the IMC in its recommendations, had stated that private virtual coins lack attributes of a currency and cannot replace fiat currency.

"A ban will be out-of-sync with most evolved economies that are choosing to regulate the cryptocurrencies to capture their potential and manage risks. Countries like Algeria, Bolivia, China, Venezuela, and Saudi Arabia, that have banned cryptocurrencies, do not share any constitutional values with India. Singapore with its progressive regulation has attracted several Indian cryptocurrency startups. India has about 350 startups in this space that will perish," says Anirudh Rastogi, founding and managing partner, Ikigai Law.

Digital gold
Cryptocurrencies are nothing but privately-built blockchain applications with use in health, governance, IP management and finance. Their use as a currency is only one of the many use cases. Experts believe that cryptocurrencies will not disappear from India, essentially because of the main characteristic that allows them to be transferred from person to person without a middleman.

"Blockchain and digital assets are poised to disrupt the world as much as the internet did back in the 2000s. While the Indian Government's concerns around capital flight, money laundering and lack of consumer awareness are understandable, a light-touch and measured approach to nurturing this global phenomenon is likely the best way forward. Regulators, world over, are introducing sandboxes as a means to let digital asset projects set-up, operate and improvise in an insulated environment, while the Government learns and creates a regulatory framework in tandem. An outright ban, albeit impractical to implement, will cost India a significant pool of talent, direct/indirect tax revenues, FDI inflow, and the chance to be recognised as a global leader in fintech innovation," says Anoush Bhasin, a thought leader in the Indian cryptocurrency space.

While the debate on the future of cryptocurrencies goes on, only time will tell which direction would the finale unfold.