“To be or not to be”- Crypto Currency in India

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So much has happened in so little time. Our last article on the legal bits of virtual currency regulations in India was published and then something hit our planet, a pandemic called “COVID-19”. Different parts of the planet are combating it at varied levels and the Indian republic is just facing the second wave. Considering the distress/SOS for the affected (by the virus as well as the lockdown) even after a year or so, Indian tech industry entrepreneur set up a COVID relief fund and sought help on Twitter from the global crypto community.

The Crypto Relief Fund:

The Co-founder of Ethereum (supposedly second biggest virtual currency) Vitalik Buterin donated $606,110 (approx. INR 4.5 crores) towards this relief. This Crypto relief chain is even growing stronger as you read. This unexpected event may sway the Govt favorably towards the VC community amidst the ruckus of “Ban or No-ban”.

At Indiaforensic, we have always gauged the regulatory hemisphere and only after authentic information in public domain, we put forward our views. From the previous article to now; some things have changed, some haven’t and let’s safely put it as “Status Quo”. We therefore request you to eyeball the scheme of events and then form your own opinions.  Let’s take it from where we left it, version 2.0 as under:

2020………! 

  • One of the popular Cryptocurrency news agencies, Coincrunch sought answers whether the Circular from the Reserve Bank of India is invalidated after the Supreme Court verdict under the “Right to Information Act”. The RBI, categorically denied what is sought doesn’t constitute information.
  • The Indian crypto industry was stubborn, this time a veteran from Indian Cryptocurrency exchange filed another RTI asking if RBI prohibits banks from dealing with businesses and individuals who trade/offer cryptocurrencies. The RBI set the record straight; no such prohibition exists as of now.
  • On a global stage, cryptocurrencies were gaining heavy traction. Ripple (another virtual currency) published a policy paper on the Digital Assets Regulation in India urging foreclosing the banking system access to digital assets would thrift illegal ways which would be far dangerous to financial stability and may even create a law and order situations in future.
  • The emergence of Central Bank Digital Currencies (in simple terms a digital banknote for retail and trade settlements) being fast tracked meant, BIS stepped in to set out standards and principles to be followed by respective Central Banks while designing CBDC’s so that it complements the existing financial system.
  • Although there was no formal ban, RBI had taken notice of number of players in cryptocurrencies (342 by RBI’s own admission) and had signaled that it is aware Fintech scope is getting broader with crypto assets.

CREBACO, a global research-rating and intelligence agency on the blockchain and Cryptocurrency industry in partnership with one of India’s oldest law firms, Khaitan & Co; made public the representation before the Govt of India to amend existing regulations along with a host of other recommendations.

….2021….

  • The Lok Sabha Bulletin published put forth the Government business that The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 which was introduced in Rajya Sabha and referred to Standing Committees and their report presented would be taken for consideration and passing. It paved way to create a framework for official digital currency.
  • Reserve Bank released a Booklet on Payment Systems covering the journey of Payment and Settlement Systems in India during the second decade of the millennium, viz., from the beginning of 2010 till the end of 2020. Without giving too much away, RBI says it is exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalize it.
  • The Finance Minister Hon. Nirmala Sitaraman, at a publicly telecast India Today Conclave 2021 South said, India will not shut all options, there is window of opportunity for crypto. This was reiterated, the RBI will take a call and how-what official Cryptocurrency will have to planned and regulated by her at the IBLA Awards 2021 on CNBC-TV-18.
  • Enter, THE Elon Musk, his tweet on Dogecoin (the meme inspired people’s currency as he likes to refer it) set the Internet in frenzy. This was corroborated by the Billionaire Investor Shark Tank Celeb, Mark Cuban. This fodder was enough for the globe to keep crypto trending till date.
  • An Indian Rajya Sabha Member of Parliament, sought answers from the Finance Minister whether the Govt was planning to ban Cryptocurrency in India, whether it is collecting Income Tax & GST on Cryptocurrency earnings of holders and exchanges respectively. The Govt stated, the Inter Ministerial Committee would take a decision soon. Regarding the scope of income tax it was explained the gains arising from crypto currencies/assets is liable to tax under head of income depending on nature of holding and since not specifically exempted services related to Cryptocurrency exchange is not specifically exempt from GST.
  • Devoid a definite legal clarity, private banks in India have shut out crypto trades and their online platforms can no longer be used to deal with crypto currency exchanges.

Although the soft signals have been there would not be an outright ban and very soon a regulatory mechanism would be formulated, but the question is when. The major Crypto players have already self-imposed disciplinary code like banking like KYC. Industry experts are suggesting measures like, well defined KYC (May be even integrating with the current CKYCR-CERSAI set-up), onboarding as RE’s (Reporting Entities) on the FIU IND platform, guidelines on data privacy and management, customer redressal in case of failed/fraudulent transactions.

Considering the pandemic and the overall situation in Indian republic, the proposed Cryptocurrency Bill would be low on priority and almost on the backburner now. However, as India takes center stage at a global level, every nation will keep an eye on these developments. Who knows this could be a “Black Swan” event and we would witness it. However when it comes to India, it’s always been a tried and tested, wait & watch approach and eventually embrace, hoping Crypto meets the same fate.

Disclaimer: As on date, the author does not hold any investments in Crypto currencies and would be like to be referred as a fence sitting cheer leading enthusiast.