Crypto Regulations in India

If you are looking to buy and sell bitcoin in India, you must know the crypto regulations of India. The journey of crypto regulation started in December 2013, with the RBI issuing a press release advising people not to buy and sell bitcoins and other private cryptocurrencies. 

A variety of reasons were given, primarily pointing towards the potential illicit uses of cryptocurrency. The major principle behind these reasons was that cryptocurrency is not backed by a financial institution or any tangible asset; buying and selling of bitcoins are completely untraceable and have the potential for illegal usage. 

Past Regulation attempts

In 2017, the Central Government formed a high-level Inter-Ministerial Committee (IMC) to study the various issues related to buying and selling of bitcoins and other cryptocurrencies and propose a future course of action. There were two sets of recommendations given by this panel:

  1. In 2018, the IMC suggested that cryptocurrency exchanges be regulated, and people should be prohibited from falsely offering crypto products as investment schemes.
  1. In 2019, the IMC proposed the Draft Bill of “The Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019”, which proposed a ban on the use of cryptocurrency and suggested creating a “digital rupee.”

It must be noted that neither of these recommendations has been implemented so far.

In April 2018, RBI issued a circular imposing a ban on cryptocurrencies. This also meant that the banks would not be able to provide any service to cryptocurrency exchanges. 

This led to a big furore in the market, as crypto companies could not continue their day-to-day operations. To oppose this blanket ban on buying and selling of bitcoins in India and other private cryptos, the crypto industry, represented by the Internet and Mobile Association of India (IAMAI), approached the apex court to strike down the 2018 RBI circular.

Stand of the Supreme Court

In March 2020, the Hon’ble Supreme Court delivered a landmark judgement by lifting the ban imposed by the RBI circular. It is important to note that the Supreme Court highlighted that the RBI could not show any substantial empirical data of the losses suffered due to cryptocurrency. 

At the same time, the relief was granted under Article 19(1)(g) of the Indian Constitution, which allows the freedom to practice any profession, another important takeaway from the judgement. The judgement highlighted the potential impact of cryptocurrencies on the economy, even if we can’t strictly equate them with the existing currency forms.

Regulation for companies

From a business perspective, the Ministry of Corporate Affairs amended the Schedule III of the Companies Act, 2013. It has now become mandatory for companies to disclose their investments in cryptocurrencies from the financial year 2021-22. This includes profit or loss, deposit or loan, and the amount of holding in cryptocurrency. It is a positive signal, implying that companies can buy and sell bitcoins and show them on their balance sheet. 

Proposed Regulatory Regime

The “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” is the proposed piece of regulation as we advance. The objective of this Bill is to prohibit all private cryptocurrencies and create a system for an official digital currency in India. Around 200 million people are dealing with cryptocurrencies globally, with 15% are from India.

If there is a ban on buying and selling of bitcoins and other private cryptocurrencies, the trading volume will become considerably smaller. More importantly, it will also discourage foreign investors from investing in the Indian crypto market and stop Indians from investing in foreign cryptos.

At a policy level, it would not make sense to ban cryptocurrency. A blanket ban on buying and selling of bitcoins would only promote a parallel economy, where people would start trading on different exchanges that do not fall under the ambit of RBI. The Ministry of Electronics and Information Technology (MeitY) has highlighted the potential benefits of cryptocurrency and blockchain (in the Draft National Strategy on Blockchain, 2021). Regulation of cryptocurrency is the only way forward. 

Worried policymakers have proposed introducing a fiat cryptocurrency. A fiat cryptocurrency is state-owned crypto, just like the Indian Rupee (₹). This Fiat currency of India will also be called Central Bank Digital Currency (CBDC). 

A government-owned cryptocurrency?

A CBDC is fundamentally different from other cryptocurrencies, primarily because of three factors – currency supply, privacy, and ease of use. Every cryptocurrency has an upper limit of circulation. This limit, once set and built into the protocol, is exceptionally difficult to change. 

For example, Bitcoin has a limit of 21 million bitcoins; this is the extent of the supply possible in the entire market – this also defines the rate of bitcoin in India. However, with CBDC, since the control lies with the Central Bank viz. RBI can change the upper limit. It is not a new practice; even in the existing currency, RBI adjusts the currency supply to achieve monetary policy goals.

Privacy is another concern. If the govt. Its currency will maintain records of all conducted, with or without the user’s consent. However, privacy is not a problem when the user buys bitcoin or other cryptocurrencies. As of now, it is possible to buy bitcoins instantly in India.

The presence of CBDC is a good sign because it shows the long-term potential of cryptocurrency and the seriousness of the government towards it – if the government does not try to discourage private crypto trading. There are many benefits that private cryptocurrencies bring to the table—foreign exposure, different asset quality, access to multiple markets and investors—all these are significant benefits that attract investors to buy and sell bitcoins. Even the International Monetary Fund (IMF) has said that innovation and diversity must be valued—even in monetary spheres.

What can the regulatory regime do for you?

Irrespective of what detractors might say, cryptocurrency is here to stay. The best way, however, to prevent the misuse of cryptocurrencies is by providing a regulatory framework for the operation of cryptocurrency exchanges. Just as there is a regulated system to trade shares, there can be a regulated system to buy and sell bitcoins in India. This would go a long way in creating a well-regulated space for the beneficial use of cryptocurrency instead of banning it completely.

Bringing in greater regulation into activities like buying and selling bitcoins, setting up exchanges, etc., is certainly a good step. But the need of the hour is promptness and certainty. The cryptocurrency market holds immense potential for wealth creation, and keeping the regulatory framework under uncertainty can have damaging consequences for the blooming crypto ecosystem in India. 
The regulatory architecture must be fixed after consulting with industry stakeholders and experts. Irrespective of the regulation, any trading in cryptocurrency must happen through a safe, trusted, and secure crypto exchanges like ZebPay.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Each investor must do his/her own research or seek independent advice if necessary before initiating any transactions in crypto products and NFTs. The views, thoughts, and opinions expressed in the article belong solely to the author, and not to ZebPay or the author’s employer or other groups or individuals. ZebPay shall not be held liable for any acts or omissions, or losses incurred by the investors. ZebPay has not received any compensation in cash or kind for the above article and the article is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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