Cryptocurrency investors in India entered panic mode after the Lok Sabha announced on November 23 that a bill to ban private cryptocurrencies will be introduced in the upcoming winter session. Following the announcement, Bitcoin crashed up to 20% on domestic exchanges.
With thousands of people talking about the government’s move, we decode what this bill entails, and what it means for people who have invested in cryptocurrencies.
Ranking no. 2 in a poll of nations that use cryptocurrency the most, India has more than 10 crore crypto investors. The crypto craze is mostly fueled by the ease of transfer, growing value, security, less transactional fees, no government control and also because it’s now considered as the future of money. But even as cryptocurrencies are growing fast, not everyone is on board. Many Govts. around the world have banned dealing and trading in crypto.
India’s Present Stand On Cryptocurrency
Govt’s official notification on the Lok sabha website says that it is set to introduce “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021″ in the winter session of Parliament beginning 29 November for consideration and passing.
This bill will aim to create a framework for the introduction of India’s official digital currency which will be issued by the Reserve Bank of India. This bill also plans on banning all private crypto currencies in India, with some exemptions solely for technological purposes.
Now you would ask, what a private crypto currency is and how is it different from a public crypto currency?
With crypto wholly being in the public domain, the details of what private cryptocurrency means, is a little fuzzy. The government hasn’t clarified the definition of private cryptocurrencies yet. However, the popular opinion is that Bitcoin, Ethereum and several other crypto tokens based on public blockchain networks which mean transactions made using these networks are traceable while still providing a degree of anonymity to users.
And if we go by this definition, then these tokens will continue to be in use. Meanwhile, cryptocurrencies like Monero, Dash, and others that cloud or hide the transaction information to offer privacy to users may be categorised as private tokens and hence, are likely to be banned. But did you know that this is not the first time that the Indian government has thought of banning cryptocurrencies. Let’s take a look at some of the past rulings by the Indian government as far as Crypto currencies are concerned.
Past Rulings On Crypto
In 2018, the Reserve Bank of India issued an order banning all banks from dealing with cryptocurrencies. In 2019, the government put together a draft version of a bill that banned all “mining, holding, selling, trade, issuance, disposal or use of cryptocurrency in the country.”
But it was in March 2020, that the SC overruled the RBI’s decision of banning crypto and hence we can today see the boom in crypto trading.
In February 2021, the government once again listed a cryptocurrency bill for the Budget session. A senior official from the government even thought of proposing a ban on crypto currencies. Cut to Now, In November 2021, this same bill has now been listed once again. But exactly why does the Indian Govt want to ban cryptocurrencies?
Why does the government want to ban crypto?
Governments have the power to control traditional currencies also known as fiat currencies such as Rupees, Dollars, Euros, Yuan, etc.
Governments, in particular, are extremely fond of fiat currencies because of one simple idea and that is – the control they have over it.
They control money circulation and also avoid financial crises by controlling it.
They can change the monetary policy to run the economy. They can track the movement of money in the economy, which earns profits and collects tax accordingly.
However, no government controls cryptocurrencies, so no government can collect taxes on it, track its movement, or even adjust its distribution. The govt. can’t even set its price.
Cryptocurrency has been flagged by law enforcement agencies in India, for use in illegal and criminal activities like money laundering, illegal fundraising.
With the advent of crypto, central banks have lost their business, which is eventually a loss to the government. Thus, the government, as well as central banks, are averse to the idea of crypto.
However, a point to note is that there are several governments around the world that have either launched their own digital currency or are in the process of bringing it.
Precisely why the RBI too is all set to bring its Central bank digital currency soon.
So how is the government’s current plan of banning crypto going to affect crypto investors?
How will it affect investors?
Many industry executives and experts had noted that banning cryptocurrencies may be technologically impossible. Industry executives said while the government can stop the use of the local currency to buy crypto, there’s virtually no way to ban crypto wallets, which exist online and aren’t under the purview of banks and governments.
A large number of crypto users on Indian exchanges resorted to panic selling amid rumours of a proposed ban on cryptocurrencies through the upcoming crypto bill in Parliament. However, experts suggest that crypto investors should not resort to panic selling as nothing is known about the content of the proposed bill yet. The definition of private cryptocurrencies is unknown as of now too.
Experts further suggest that Investors should also wait for a government statement on this matter and not rely too much on information from secondary sources. A lot more clarity is needed on the subject before investors should worry.