The Indian government's intent to prohibit private cryptocurrencies, like Bitcoin, has spooked the existing cryptocurrency holders in the country. Finance Minister Nirmala Sitharaman on Tuesday said that an inter-ministerial committee has suggested ban on private cryptocurrencies in India, except any virtual currencies issued by state. Though there is lack of clarity, but the industry experts believe these are serious challenges.
"The optimists among us have pointed out that the term 'private cryptocurrencies' has not been defined, and hold out hope that perhaps some tokens might be left well enough alone. We hope so as well, but that being said we must also acknowledge that in previous pronouncements, notably in the report of the committee to propose specific actions to be taken in relation to virtual currencies, the Ministry of Finance has used that term to refer to any cryptocurrency that was 'issued by private enterprises as opposed to sovereign entities'," says Kevin Lim, Head of Legal, ZebPa.
Crypto exchanges in India have witnessed multifold jump in their daily trades after Bitcoin, the world's largest cryptocurrency, soared over 310 per cent in 2020. Industry experts ask the holders of cryptocurrencies to continue holding their digital asset to gain from the rally.
"Confidence of investors trading in digital assets is at an all-time high with Bitcoin surging over 300 per cent in just one year. Financially aware individuals in India don't want to miss out on the stellar returns offered by digital assets. BuyUcoin has witnessed over 700 per cent increase in trading volumes between March 2020 and February 2021. Investors should continue their growth journey through strategic investing in digital assets," says Shivam Thakral, CEO, BuyUcoin.
In the extreme case, if the ban on cryptocurrencies is implemented, the exiting holders need not worry about loss of their money. They will still have access to international exchanges where they can trade their holdings. Sumit Gupta, CEO & Co-Founder of CoinDCX, explains the consequences if the crypto bill gets passed. He discusses the specific case for investors trading on CoinDCX, but most big exchanges operating in India will allow global liquidity.
"In the worst case scenario, if the government does decide to ban cryptocurrencies, CoinDCX has ironclad measures in place to safeguard its investors. Users will not have to worry about loss of funds, as they are well aware that they have access to global liquidity made possible through various exchange partners such as Binance, Huobi, OKEx, among others. Customers' funds are also protected from loss, due to CoinDCX having Bitgo as a custodian. We also have stringent KYC/anti-AML measures in place. With all these measures in place, the customer can be rest assured that they can hold on to their assets," says Gupta.
Some other experts believe a complete ban is impossible but in case it happens, the government will provide an exit window to the existing holders of crypto assets, including Bitcoins.
"Digital assets like Bitcoin are not controlled or issued by any single entity hence there is no single owner of Bitcoin. In essence, therefore, it's not possible to ban a 'piece of code'. I think a ban is unlikely, but if it does happen, I hope they will at least give some time for existing investors to exit their position in cryptocurrency to safeguard their interest," says Thakral.
On the contrary, financial planners caution the existing investors of crypto assets. They advise investors to sell the holdings to avoid huge losses later if the ban comes through.
"It would be a better option for the investors to square off their positions in the near future as in if the proposal is put into action and implemented, it would not be possible to square off the deliveries at that time and investors would have to incur huge losses. The seriousness of the following statement could be measured if we revisit to the year 2018 where RBI banned all the banks from processing any transaction related to the digital currency which was later subdued by the Supreme Court last year," says Nitin Shahi, Executive Director of Findoc, a financial services group.
The industry veterans remain optimistic on the proposed bill. Kevin Lim believes the nature of the prospective ban would merely be to prohibit the use of cryptocurrencies as payment for goods and services in the real economy; and the use of cryptocurrencies as a means of transferring value between persons and/or out of the country.
"If so, that would leave untouched the legality of owning cryptocurrencies per se as well as the trading of cryptocurrencies as an investment activity," he says.
The industry participants need more details to guide them to take a better decision on their holdings in cryptocurrencies. Crypto experts welcome the move to create 'Central Bank Digital Currency'. "It is a major step towards creating a healthy digital asset ecosystem in India," says Thakral.