Category: bitcoin

21 May 2021

Why Indian government shouldn’t delay cryptocurrency regulations

Cryptocurrencies, with no underlying asset, pose high risk to investors. According to data from crypto exchanges, there are approximately 1.5 crore Indians who have invested in cryptocurrencies holding Rs 15,000 crore

Indians investing in cryptocurrencies may be taking a highly risky bet in the absence of regulations by the Reserve Bank of India (RBI) and the government with respect to these instruments, said experts. Till regulations bring clarity, any type of crypto transactions should be banned in India, they said. “Be it as a medium of exchange, mode of investment/ assets, cryptocurrency dealings should be banned in India and should be made as a criminal offence,” said Madan Sabnavis, chief economist of CARE rating agency.

“Unless we have regulations and an official view on this, Crypto is no different from gambling,” said the veteran economist.  The comment assumes significance at a time when investors are increasingly betting on crypto currencies.

Cryptocurrency is decentralised digital money, which works based on blockchain technology. Bitcoin and Ethereum are the poplar crypto currencies but there are thousands of cryptocurrencies in circulation.

Even as the Reserve Bank of India (RBI) and the Government have not formed an opinion on the crypto currencies, there are many Indians who have taken exposure in crypto market.  According to data from crypto exchanges, there are approximately 1.5 crore Indians who have invested in cryptocurrencies holding Rs 15,000 crore. There are 350 startups who operate in blockchain and crypto. Crypto exchanges, WazirX, CoinSwitch Kuber and other exchanges, have seen a big rush in demand from users and crypto exchanges are advertising heavily on investments.

Already, the RBI has raised concerns on crypto currencies. On March  25, speaking at the 7th edition of India Economic Conclave, the RBI Governor, Shaktikanta Das had said the central bank has flagged some major concerns to the Government about crypto currencies. “Both RBI and the government are committed to financial stability. We have flagged some major concerns to the government on crypto currencies. The government will come out with a decision sooner than later,” Das had said.

The RBI, in 2018, banned all banks from dealing in cryptocurrencies but a Supreme Court order overturned this ban on a plea by Internet and Mobile Association of India (IMAI). The court said that while the RBI has the power to regulate virtual currencies, in the absence of any legislation, the business of dealing in these currencies ought to be treated as a legitimate trade that is protected by the fundamental right to carry on any occupation, trade or business under Article 19(1)(g) of the Constitution.

While the RBI is clearly not comfortable with the idea of cryptocurrency as a medium of exchange, the government’s stance on this issue is  not clear. The government has proposed to present a Bill to regulate cryptocurrencies called The Cryptocurrency and Regulation of Official digital currency Bill, 2021. The Bill has provisions to make any dealings in cryptocurrency illegal. But there is no clarity yet on when this Bill will be introduced in Parliament.

Why people buy crypto?

There aren’t many attractive investment options in the present economic environment, where real interest rates have turned negative. With interest rate falling sharply, bank deposits have turned unattractive to the investors. Similarly, high volatility and a dull economic environment have made real estate, equity and mutual fund investments unattractive for HNI investors, prompting many of them to look at crypto bets.

Due to a mix of factors such as the COVID-19 crisis, the poor rate of returns on banking investments, cryptocurrency stands to gain in popularity as it is being seen with the potential to become a good investment alternative, like gold or real estate, if certain provisions are met, said Jaya Vaidhyanathan, CEO of BCT Digital.

“This is still far away, but it can happen over a period of time.  We are going to see lack of trust from authorities till it is fully evaluated. Although Bitcoin has been seen with caution and distrust by authorities, its underlying technology, Blockchain, has a lot of advantages in today’s digital banking context as well,“ Vaidhyanathan said.

What if cryptocurrency gets banned in India?

Lack of clarity on regulation would mean that crypto investors may be facing high risk if the government decides against cryptocurrencies in India. Those holding crypto assets may face a sudden shocker if India decides to ban the cryptocurrency assets tomorrow, experts said.

“There is no underlying to the crypto currencies, so it is highly risky for anyone to use it as asset. You can’t certainly treat it as a mode of exchange. With high volatility seen in recent days, it is quite clear this is a speculative asset,” said Ashvin Parekh of Ashvin Parekh Advisory services.

“Also, there is a possibility of illegal elements using crypto for money laundering  activities,” said Parekh. While big investors like Tesla founder Elon Musk can afford speculating in such assets, common investors may be facing high risk, Parekh added.

With the RBI not clarifying its position, banks have been wary about cryptocurrencies too.

“Central banks advocate the centralization of an economy and its banking system. Bitcoin or most cryptocurrencies, for that matter, are the opposite of that. They are not controlled by a country’s regulators or even governed by them,” said Vaidhyanathan of BCT Digital.

“Under such circumstances, it’s natural for regulators to be suspicious of them, leading to trading bans or tightened regulations. In 2018, a lot of Indians were trading in cryptocurrencies, convinced of its benefits. But soon, this was questioned and outlawed,” Vaidhyanathan said.

A senior banker, who didn’t want to be named, said banks are staying away from crypto transactions since the RBI hasn’t clarified its position officially. “For us, the RBI is the apex authority. Till the time, the RBI doesn’t clarify its position, we will not touch this segment,” said the banker.

12 Feb 2021

Get ready for hefty penalty to legalize your crypto assets in India

The bill may allow holders of such currencies a transition period to exit the asset class before its anticipated ban.

NEW DELHI : The proposed cryptocurrency bill may allow holders of such currencies to exit the asset class before its anticipated ban but may put a heavy penalty on its conversion to a legal asset.

“The bill is yet to be finalized. The form and manner of declaration and how existing holders of the cryptocurrency should dispose of it will be prescribed either in the law or through the rules to be notified later,” a finance ministry official said on condition of anonymity. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is scheduled to be tabled in the ongoing budget session of Parliament. The bill is intended to “create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India (RBI). The bill also seeks to prohibit all private cryptocurrencies in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” the Lok Sabha secretariat said in a bulletin.

The bill is likely to make mining, holding, selling, issuing, transferring, and using of cryptocurrency a punishable offence with a heavy fine or imprisonment or both.

“Certain media reports suggest that the government has decided to ban all private cryptocurrency and other key players of the industry. We would like to receive an intimation from the government on this. We would like to reiterate that the government of India is yet to release the draft of the proposed bill. As an exchange, we remain hopeful that the ministry of finance will definitely engage with the community before taking any harsh measures,” said Sumit Gupta, founder of cryptocurrency exchange CoinDCX.

Investments worth $24 million went into crypto firms in 2020, up from a mere $5 million in the previous year, as per data from analysis firm Venture Intelligence. Crypto firms in India have also experienced a successful year since the lockdown in March 2020. Crypto trading in India has become a formalized sector over the past few years, because of the rise of various crypto exchanges.

26 Jan 2021

RBI Says It’s Exploring Possibility of Digital Version of Fiat Currency

By Brisk Avenue


Amid increasing popularity of virtual currencies in various parts of the world, the Reserve Bank of India on Monday said it is open to exploring the possibility of a digital version of fiat currency. Host of private digital currencies, virtual currencies and cryptocurrencies have gained popularity in recent years, though Indian authorities continue to remain sceptical about them.

 In India, the regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks. “Nevertheless, the RBI 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 operationalise it,” the RBI said in its booklet on ‘Payment Systems in India — Journey in the Second Decade of the millennium.

Central bank digital currencies is a legal tender and a central bank liability in digital form denominated in a sovereign currency and appearing on the central bank’s balance sheet. It is in the form of electronic currency, which can be converted or exchanged at par with similarly denominated cash and traditional central bank deposits. Innovations are changing the payments space rapidly. This has made central banks around the world to examine whether they could leverage on technology and issue fiat money in digital form,” the RBI’s booklet said. It further said the RBI has already established a framework to capture the location and business details of commercial bank branches, ATMs and banking correspondents across the country. It is envisaged to extend a similar framework to capture and maintain information about point of sales terminals and other payment system touchpoints, the booklet said. The booklet covers the journey of the Payment and Settlement Systems in India during the second decade of the millennium — from the beginning of 2010 till the end of 2020.The RBI said it captures the transformation of India in the sphere of payment and settlement systems. It describes, inter-alia, the legal and regulatory environment underpinning the digital payments systems, various enablers, payment options available to consumers, extent of adoption during 2010 to 2020, it added.

 The Reserve Bank of India had earlier come out with booklets on payment systems in 1998 and 2008. This third booklet in the series is expected to This third booklet in the series is expected to serve as a reference document for those interested in knowing more about payment system developments in the country, the RBI said.


“This booklet is a narrative of how the carefully thought-out steps taken by the RBI have resulted in transforming India into a country riding the crest of a wave in the evolution of digital payments,” said RBI Governor Shaktikanta Das in the ‘Foreword’ of the booklet. While realising that ‘well begun is half done’, Das said the RBI is mindful of the challenges ahead. Various initiatives are underway to realise India’s vision on payment systems.  The RBI seeks to usher in a payment ecosystem that enables safe, quick and affordable digital payments to everyone across the country as well as in cross-border payments and transactions, he added. The factors inhibiting the digital push are connectivity issues, inadequate acceptance infrastructure, lack of familiarity with newer, alternative payment methods, delay in getting complaints resolved and security and privacy concerns.”RBI has acknowledged the same and to address these issues has put in place systems like, consumer awareness programmes, ombudsman schemes, etc,” the booklet said. It further said that such is the development of digital payment in the country that it has started expanding beyond boundaries.Implementation of successful Indian practices in developed countries of Europe and the U.S. is testimony of India being perceived as the leader in payment systems now, said the booklet.