The State of the Blockchain Ecosystem in India and the Possibility of a Crypto Ban
This is the third article in a series where we will explore the current state of the blockchain ecosystem in specific countries, with each article featuring a different country.
What comes to mind when someone mentions India? Perhaps it’s India’s famous landmark, the Taj Mahal, the colorful Holi festival, or its friendly people. India is the second most populated country in the world, with slightly less people than China. At the time of writing, the population of India was 1,399,642,907. That’s almost 1.4 billion people!
However, what you may or may not know is that India has the highest number of cryptocurrency owners in the world at about 10.07 crore (100,700,000 people), although the ticket size of most of them is quite low. The U.S. is in a distant second with 2.74 crore (27,400,000 people). With more than 100 million cryptocurrency owners, one would expect that the country would look favorably on crypto ownership, but the legal status of cryptocurrencies is up for debate. The possibility of a crypto ban is looming on the horizon.
The Potential Crypto Ban in India
Back in 2018, the Reserve Bank of India, India’s central bank, first tried to implement a crypto ban in the country by preventing banks from using crypto, but this ban was later voted unconstitutional by India’s Supreme Court.
However, while it was implemented, it caused crypto exchanges to be unable to access banking services. Trading volumes fell significantly during this time, and the number of crypto jobs available in India plummeted. Although the first attempt failed, it had a devastating impact on the crypto industry in India while it was in place.
Then in January 2021, the Indian government announced that it would introduce a bill to create a central bank digital currency, and at the same time ban all private cryptocurrencies.
The fear for those in the crypto space as well as investors is that this move could cause tech talent and businesses to leave India, having a negative impact on the economy much like it did with the 2018 ban. Of course these fears are in addition to the knowledge that if a ban is instituted, the more than 100 million people who currently own cryptocurrencies will no longer be able to hold or trade them in India.
This could cause either a mass sell-off or cryptocurrency owners to move to other countries. Actually, the impact of the potential crypto ban already began to take effect in November 2021, with heavy selling taking place in the country’s crypto markets. After the news about the bill, the price of the USDT stablecoin fell to $0.80.
More on the Crypto Ban
The bill, if it is passed by India’s Parliament, would ban India’s citizens from transacting in most cryptocurrencies, with the government allowing only certain cryptocurrencies in order to promote blockchain technology and its uses. Some exchanges in India have even faced difficulties with deposits and withdrawals because so many people decided to sell in the face of uncertainty about crypto’s future in India.
If the bill is passed and all but a few private cryptocurrencies are banned, those who break the law could be subject to arrest without a warrant and could be held without bail according to information in a report by Reuters.
Confusion Regarding the “Crypto Ban” Bill
However, there has been some confusion regarding the bill due to the fact that it has been described as a crypto ban, but a few private cryptocurrencies as exceptions “to promote the underlying technology of cryptocurrency and its uses.” The language used in the bill seems to leave room for various different interpretations, as the bill did not fully specify what is meant by “private” cryptocurrencies, or which “private” cryptocurrencies would be counted as the exceptions to the regulation.
Cryptocurrencies Are Still Popular Despite the Threat of a Crypto Ban
Despite the possibility of a crypto ban in India, whatever that means exactly, cryptocurrencies have remained extremely popular in the country. India has also managed to maintain its status as the country with the most cryptocurrency owners, although this will likely change if the crypto ban legislation is passed, depending on which cryptocurrencies are actually banned and which are allowed to remain in circulation.
In fact, not only were cryptocurrencies still being traded throughout 2021, but the interest in cryptocurrencies far exceeded that of many other countries. India is the only country where ‘cryptocurrency’ has been searched more on Google during the bull run of 2021 than during the bull run of 2017. This signals a new level of support from the people of India for digital assets, but if this will have any impact on whether the bill is passed or not is unknown.
If the bill is passed, cryptocurrencies will most likely still be accepted as an asset class, taxed like capital gains, but will be banned as a medium of exchange. Furthermore, at a recent summit, Prime Minister Modi stated that global norms are needed for cryptocurrencies, perhaps indicating that regulations could be much less severe than a complete ban on cryptocurrencies. Whatever the outcome, those involved in the crypto space will be watching the developments as they transpire.
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