CRYPTOCURRENCY IN INDIA 2020

On 4th March 2020, in a landmark ruling by the Supreme Court of India, the circular that was issued by the Reserve Bank of India back in 2018 which effectively banned the trading of cryptocurrency in India, was quashed.

CRYPTOCURRENCY TRADING IN INDIA IS LEGAL!

The financial regulator RBI (Reserve Bank of India) issued a circular on 6th April 2018 which called for all banks to immediately cease business with any businesses or individuals involved in cryptocurrency transactions, specifying a three-month deadline. The exact wording prohibited “providing any service in relation to virtual currencies including those of transfer or receipt of money in accounts relating to the purchase or sale of virtual currencies”. This effectively shot down hundreds of businesses who were riding high on the cryptocurrency wave, and thousands of individual traders across India. Since that circular was released almost all of the cryptocurrency trading companies in India have folded.

Many took offence to this, and the Internet And Mobile Association of India (IAMAI) challenged it in the court. On July 13th 2018 the court refused to set aside the RBI’s ruling until they heard evidence from RBI, the Finance Ministry and the Union Ministry of Information and Technology.

The RBI subsequently clarified in an affidavit that they “had not banned cryptocurrencies, but only ring-fenced regulated entities from associated risks.” This still had the effect of almost banning cryptocurrency trading in India as any cryptocurrency buying or selling naturally makes use of the Indian rupee as a base currency.

Zebpay, which was the largest cryptocurrency trading company in India (with thousands of customers) shut down in 2018 after 4 successful years, as it was hindered by the RBI’s ruling.

HOWEVER, cryptocurrency investment in India is now back on the cards, as the Supreme Court finally ruled against the RBI. The bench made up of three judges; Aniruddha Bose, V Ramasubramanian and RF Nariman, concluded that the RBI circular can now be set aside on the basis of ‘proportionality’.

HOW TO DO CRYPTOCURRENCY TRANSACTIONS IN INDIA?

As of 4th March 2020 it would appear that trading in all forms of cryptocurrency is once again legal in India and can be freely practiced by individuals and businesses. It should be noted though, that the number of cryptocurrency trading companies in India has dwindled from hundreds to only a handful since the RBI circular of April 2018. The new climate since the court ruling should see many of the old names rejuvenate themselves and resume operations and a raft of new ones will no doubt appear as time goes on. You should consider very carefully whether you wish to embroil yourself in the controversy of cryptocurrency trading such as Bitcoin in India. The RBI cites its reasoning for attempting to keep the financial bodies that they regulate away from cryptocurrency as protecting them from risk. The IAMAI felt that it was not about risk, but that the RBI sought to ban cryptocurrencies purely on moral grounds, as there had been no research made into their effects on economies.

THE FUTURE OF CRYPTOCURRENCY IN INDIA

While everything seems to be looking rosy for the moment, there is still something looming that could change the game once again in the near future. The government of India, along with an inter-ministerial committee have been planning a draft bill on the subject of banning cryptocurrencies. So far it is believed to be in its early stages, but could be passed at any time in the future. The circular from the RBI has at least bought the government some time in which to draft their bill. The current draft contains a line that proposes up to ten years in jail for those who “mine, generate, hold, sell, transfer, dispose of, issue or deal in cryptocurrencies directly or indirectly.” With this in mind, the future may not be rosy, but rather bleak.

DRAFT BANNING OF CRYPTOCURRENCY & REGULATION OF OFFICIAL DIGITAL CURRENCY BILL, 2019

The Draft Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019 is a bill that is currently being worked on by the government of India which seeks to eliminate the mining, holding, selling, trade, issuance, disposal or use of cryptocurrency within India, by making the aforementioned criminal offences. The current draft of the bill mentions that punishment for engaging in the aforementioned acts could be by fine, imprisonment for up to 10 years or both. Under the definitions of the draft bill, ‘cryptocurrency’ encompasses “any information, code, or token which has a digital representation of value and has utility in a business activity, or acts as a store of value, or a unit of account.” The bill does mention that there may be valid exemptions, but the only ones mentioned are using the ‘technology or processes underlying cryptocurrency for experiment, research or teaching.”

Please be clear that this is still a draft bill and changes and amendments may be made up until such time the government decide if and when to pass it as an actual bill. If it goes ahead unchanged, then according to its stipulations, anybody possessing any cryptocurrency will have a grace period of 90 days from commencement of the Act in which to declare and dispose of it.

What are you views about the cryptocurrency situation in India? Are the government right for seeking to ban it completely? Should they be investigate ways to regulate it rather than ban it as some countries have done? Please share your thoughts in the comments box below.

Investment Advisory: https://gwcindia.in/