Despite its 1.3-billion-person population, its $80 billion remittance industry, and the fact that India has been identified as the land of opportunity for cryptocurrency and the global payments industry, the country has largely been a minor player on the cryptocurrency industry’s global stage.
Indeed, while countries slightly further to the east and west have made themselves international hubs for the cryptocurrency industry, India has, arguably, been left behind — but that may soon change.
Recently, the Reserve Bank of India (RBI), the country’s central banking institution, clarified to the country’s supreme court that although banks in the country are forbidden from having working relationships with cryptocurrency platforms, cryptocurrency itself is not, in fact, illegal or otherwise banned in India.
“Firstly, the RBI has not prohibited VCs (virtual currencies) in the country,” read part of a 30-page affidavit that the bank submitted to the court. Instead, “the RBI has directed the entities regulated by it to not provide services to those persons or entities dealing in or settling VCs.”
— Crypto Kanoon (@cryptokanoon) January 28, 2020
The affidavit was submitted as part of an ongoing court case between RBI and the Internet and Mobile Association of India (IAMAI), represented by Asim Sood, over the legality of the ban. The supreme court concluded its hearings on the case earlier this week, and has reserved its judgment for the time being; public comments are being accepted by the court until the 31st of January.
A precarious moment in India’s crypto history
While the case could potentially lift or otherwise alleviate the banking ban on crypto in the country, it’s also possible that the ban could be upheld, and the case used as legal precedent for instituting further restrictions on cryptocurrency in the country.
And indeed, there have already been efforts to curb the usage of cryptocurrency in the country — one bill, entitled “Banning of Cryptocurrency & Regulation of Official Digital Currencies,” could punish crypto users of up to 10 years in prison if passed into law. While most believe that the bill is flawed and will not become law, the sentiment that it represents among some lawmakers could potentially harm crypto in India.
However, while the future of cryptocurrency in India may be more precarious than ever, it’s also clear that the ongoing court case has shone a spotlight on the country’s cryptocurrency industry, which, in many ways, is ripe with potential. In other words, this seems to be a crucial time for crypto in India.
What does the legal landscape around crypto in India really look like? What’s really at stake here? And how could the outcome of the court case alter the destiny of crypto in India?
RBI’s ban did serious damage to the crypto industry in India
Vamshi Vangapally, the founder of cryptocurrency tax software firm BearTax, explained that RBI’s decision to institute the ban came as part of an effort to “reduce any legal and operational risks with various monetary means.”
“The restriction of not allowing banks and other financial entities to deal with cryptocurrency exchanges could [have been] started with an intention to help the national economy and avoid bad actors taking advantage of unregulated space,” Vangapally explained.
However, Vangapally believes that the ban has gone too far: “it has pushed many legit exchanges — which were complying and proactively doing know-your-customer and anti-money-laundering [measures] — to go out of business,” he said.
Indeed, a number of cryptocurrency exchanges based in India have shut their doors as a direct or indirect result of the ban.
The chief executive of one of these exchanges, Koinex, wrote of its decision to shut down in June that “we have consistently been facing denials in payment services from payment gateways, bank account closures and blocking of transactions for trading of digital assets.”
“Even for non-crypto transactions like payment of salary, rent and purchase of equipment, our team members, service providers, and vendors have had to answer questions from their respective banks — just because of an association with a digital assets exchange operator,” he explained.
”Regulations will always play a very different kind of a hand on you.”
Other crypto platforms in the country have managed to stay afloat with creative solutions.
In an interview with Finance Magnates conducted earlier this year, Nischal Shetty, chief executive of Indian peer-to-peer cryptocurrency exchange WazirX, told Finance Magnates that after the ban, “we decided to build a peer-to-peer [platform]. Because we said, ‘alright, the problem at hand is that we cannot have a bank account–but that doesn’t mean that our users don’t have bank accounts.”
WazirX went onto create a three-party system where “we, as an exchange, will escrow the crypto, and make the buyer transfer the money directly into the seller’s bank account, not to our bank account.”
WazirX eventually became so successful that it was acquired by the Malta-based Binance, the largest cryptocurrency exchange in the world.
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All the same, Shetty said that the challenges that the industry is facing remain significant: “the important factor here to understand is that regulation–not just in India, but in the whole crypto ecosystem if you look at it globally–regulations will always play a very different kind of a hand on you. And you, as a business working in crypto, will have to figure out how to navigate it.”
A “marked change” in “the sentiments associated with cryptocurrencies”
And, of course, the impact of the ban was directly felt by cryptocurrency users: “for a normal user, it has had a significant impact because the abstraction of various technical aspects of trading bitcoin or other cryptocurrency is being taken away,” explained Vamshi Vangapally.
“There are no fiat ramps now, and it is very hard for the common man to trust anyone on LocalBitcoins and other open peer-to-peer entities. With increasing skepticism and uncertainty, people even said it was illegal to trade or buy Bitcoin.”
However, despite the fact that the outcome of the court case could maintain the restrictions on the cryptocurrency industry in India (or potentially worsen them), some of the country’s industry participants see the media cycle that has followed the court case as a positive thing for crypto in India.
So now we wait for judgement day!
Do remember, whatever the outcome, this is just a step towards the ultimate goal.
— Nischal (WazirX) ⚡️ (@NischalShetty) January 28, 2020
Indeed, Sumit Gupta, Chief Executive Officer and co-founder of CoinDCX, told Finance Magnates that in the two years since the case started in April of 2018, “there has been a marked change in the progress of the case as well as the sentiments associated with cryptocurrencies in general.”
Gupta said that the discourse used to discuss crypto within the context of the court case has undergone a positive shift: “[in] the early days of crypto restriction, the court arguments solely focused on negatives in crypto space,” she explained, whereas now, it’s clear that legal officials “[understand] more about it.”
The court case may have resulted in positive changes in the discourse around cryptocurrency in India
This has also affected the way that cryptocurrency is discussed in the country’s local media, according to Sumit Gupta: “there has been a change in the media coverage too,” she said. “Earlier mainstream media focused more on negative crypto coverage. Lately, we have been observing more positive news coverage…there has been a positive change in the mainstream mindset.
Similarly, Tushar Aggarwal, chief executive officer of Persistence.One, the enterprise hub of Cosmos, co-founder of Cosmos India, told Finance Magnates that the court case and the surrounding media cycle have been “a great thing for the crypto industry in India as there was a lot of interest in the case from outside the crypto circles as well.”
“Enterprises were also looking at it from close quarters as this would help them formulate strategies involving blockchain and crypto in general,” Aggarwal said.
Vamshi Vangapally also pointed out that “awareness campaigns” run by Indian cryptocurrency platforms like CoinDCX and WazirX, as well as crypto-focused media sources like the CryptoKanoon twitter account, “have been phenomenal and keeping the Ministry of Finance and other related entities in loop of latest developments.”
At the same time, “myth-busting” surrounding crypto regulations in India “ was much needed, given the lack of information around digital currencies,” Aggarwal noted. “This case has helped many understand that Bitcoin and crypto is not a means for criminal activities, but a legitimate tradable asset class.”
A positive verdict could open the innovation floodgates
And indeed, the regulatory attitude toward cryptocurrency in India does seem to have shifted. Earlier this week, the country’s National Institute for Smart Governance (NISG) published a draft document detailing what could become India’s national strategy on blockchain and distributed ledger technology. The document suggested the creation of an Indian central bank digital currency (CBDC) and a national blockchain.
Even if crypto isn’t going to be a part of the picture, Vamshi Vangpally said that India as a country “has been focusing on increasing the adoption of digital payments as they are more traceable [than cash payments], and increase tax revenues for the government. As part of this, they have taken steps [toward the] demonetization of widely-circulated and stashed cash.”
Still, further positive shifts toward crypto are certainly desired by the industry. Sumit Gupta explained that “in the event that we are handed down a fair and favorable verdict from the court, it will help more companies to build crypto-backed products”
“It could also mean more investment in the crypto space (especially in retail and institutions), resulting in creating more job opportunities,” she added. “This could result in overall growth of the Indian economy.”
Even if the country’s economy as a whole doesn’t grow as the result of a positive verdict, the crypto industry in India is set for significant growth: Anoush Bhasin, an accountant in partnership with BearTax in India, told Finance Magnates that a positive verdict for IAMAI could bring even more attention to India’s crypto space: “lots of enthusiasts are investing, trading, and building…If the ban is uplifted, India will attract tremendous attention and investments,” he said.
Crypto’s promised land?
There is good reason to believe that India has huge potential as a hotspot for the crypto industry — ”given its diversity, huge population, affinity towards new technology, and the youthful population, India has always been an opportunity for global business to expand and grow exponentially,” Vamshi Vangapally explained.
Vangapally pointed to the Binance acquisition of WazirX as an example of potential global interest in India’s potential for crypto: “[even] with a lot of uncertainties, innovation by exchanges like WazirX on implementing P2P models successfully has given Binance confidence to operate even with RBI regulations, and train tech-savvy investors to use an exchange that has weathered the storm.”
“With this, there could be a greater push and confidence in other innovators to widen the DeFi momentum and bring in more businesses to India with confidence.”
What are your thoughts on India as a potential hub for the global cryptocurrency industry? Let us know in the comments below.