The government’s plan to ban all private cryptocurrencies in India has spooked investors with prices of the world’s oldest cryptocurrency bitcoin trading at a steep discount of up to 20% against a premium of 10% in the last few days.
At a time when the price of a Bitcoin, the most popular cryptocurrency, hovers at a high of $33,000, the government has finalised the contours of legislation that would create the ground for the introduction of an official digital currency and prohibit private cryptocurrencies. A bill for this is likely to be introduced in the ongoing session of parliament
Despite a number of central banks around the world growing more amenable to cryptocurrencies and the applications of their underlying blockchain technology, India’s tryst with the crypto domain has been on-again, off-again.
Apart from banning cryptocurrency trading on currently unregulated exchanges, the Bill also aims to “create a facilitative framework for an official currency” but will include specific exceptions “to promote the underlying technology of cryptocurrency and its uses,” according to a Lok Sabha bulletin.
The ban stirred panic among the many fledgeling cryptocurrency trading platforms in India forcing many to shutter. However, a group of these exchanges and traders appealed against the proposal at the Supreme Court via a lawsuit, and in March 2020, the apex court ruled in their favour.
The verdict boosted optimism among cryptocurrency proponents but did not amount to any material change from a policy standpoint.
RBIs View on Cryptocurrency
Since 2013, RBI has been issuing warnings about the potential risks of the use of cryptocurrencies to the financial system of the country. The Inter-ministerial Committee on February 28, 2019, had also released a report recommending certain measures in relation to cryptocurrencies, which included a complete ban on private cryptocurrencies.
This committee had also prepared a draft bill known as Crypto Token and Crypto Asset (Banning, Control, and Regulation) Bill, 2018
In April 2018, the RBI barred regulated financial institutions from providing services to businesses dealing in the exchange/trading of cryptocurrencies. This had pushed the Indian cryptocurrency trading industry into a state of turmoil.
The validity of the circular was challenged before the Supreme Court in various writ petitions lead by crypto-trading entities. In its decision in the Internet and Mobile Association of India v. Reserve Bank of India, in March last year, the Supreme Court struck down the circular.
The Supreme Court verdict may have brought down the RBI intervention and one could buy and sell virtual currency, but the absence of a legal framework kept the risks alive and thriving.
The absence of a legal framework on cryptocurrencies has been forcing financial institutions and the banking sector to stay off the virtual currency regime.