The RBI has been pushing for the prohibition of crypto in India while the finance minister, Nirmala Sitharaman, has said any decision on a crypto ban will need “significant international collaboration”. What will happen to investors' money if there is a crypto ban?
The RBI has been pushing for the prohibition of cryptocurrency in India.
It was back in November 2021 that headlines of a possible crypto ban in India were pervading the internet and the announcement left investors perturbed about whether they were going to lose out on their crypto investments.
Back then, it was the central bank, the Reserve Bank of India (RBI), that lit the tinderbox by proposing that cryptocurrencies be prohibited in India and that sentiment mushroomed yet again after finance minister, Nirmala Sitharaman, informed the parliament on 19 July that the RBI wants crypto prohibited.
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Establishing clarity in regards to this matter, the FM further said that no ban on crypto would take place without “significant international collaboration.”
As much as the idea of a ban on crypto in India is speculative, many investors are worried about what would happen to their money if a ban is imposed. What does it mean for technology in India? Would a ban in India have a huge impact on the global trading market?
We reached out to market research analysts and Indian crypto exchanges to find answers to some of these pressing questions.
What does a ban mean for investors?
The year 2018 saw the RBI prohibit banks from dealing with cryptocurrency exchanges, which led to many people flocking to exchanges to sell their crypto. The investors were given 3-6 months to exit their investments. Many who wanted to hold on transferred their crypto to foreign exchanges where laws were more crypto-friendly.
More recently, crypto has been grabbing headlines for all the wrong reasons, not only due to the steep drop in prices but also because of customers losing their investments due to major crypto hedge funds like 3 Arrows Capital capitulating and exchanges like Vauld suspending withdrawals due to unfavourable market conditions.
The adoption of crypto in India has risen in the past few months.
Surprisingly, India is amongst the top three countries where crypto adoption has skyrocketed over the past few months. A report by crypto exchange Gemini states that over 54 percent of the respondents from India were first-time investors in crypto over the past year.
In hindsight, all this talk about a crypto ban and investors losing their money has forced a lot of people to think about whether their investments are in any danger.
“In the unlikely event of a ban on crypto in India, the investor money is safe and will be returned to them at a stipulated time frame to be decided at the time such an unlikely event occurs. Investors own the crypto that WazirX investors have on the exchange, and they have the facility to withdraw as they please. As a company, we have never stopped crypto withdrawals on WazirX in the past and have always been transparent about any upcoming, transient maintenance activity. However, prudence requires investors to check the crypto ownership and terms and condition of withdrawals on their investment platforms.”
- Rajagopal Menon, Vice President at Wazirx
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Though most crypto exchanges in India, like CoinSwitch Kuber and WazirX, act as custodial wallets where they only facilitate the transfer of your funds from Indian rupees to crypto and vice-versa, these exchanges don’t own your money and therefore, you have the right to withdraw your deposits whenever you want to.
It is believed that in the event of a ban as well, the investors will be allowed to withdraw their funds or move them to other physical wallets. However, at the end of the day, the buck stops at what the government says.
What will crypto exchanges do?
Till now, crypto has found a haven in countries like El Salvador and the Central African Republic, where Bitcoin is accepted as legal tender. There are many other countries, like Portugal, Switzerland and even Bermuda, where there is no tax on crypto.
When things have become difficult, crypto exchanges have ventured out to look for more conducive crypto-friendly economies. In case strict regulations or a ban is imposed in India, these exchanges would have no other option but to move their base out of the country.
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In the past, firms like ZebPay and Vauld have moved to Singapore where tax laws won’t burn a hole in anyone's crypto wallet. While India has an unclear stance and regressive tax policies against digital assets, there’s fear that more crypto businesses in India might consider moving out to protect their investments. However, many experts believe that a majority of the crypto trading in India will move underground and crypto owners might seek illicit means to buy and sell crypto if a ban is imposed.
What does it mean for India’s technological future?
Apart from exchanges, multiple crypto startups in India will be forced to look for more business-friendly environments to work in.
Some crypto exchanges have suspended withdrawals following the crypto meltdown.
This could not only lead to a loss of a massive talent pool in Web 3.0 and Blockchain developers, but India could also lose out on advanced technological innovations that this sector has to offer and will offer in the future.
“Just like the IT revolution created a whole new middle class in India, Crypto can potentially transform the lives of the most marginalized. We could lose out on a lifetime opportunity to drag 500 million people out of poverty. Banning crypto in India will affect the whole ecosystem in multiple ways. Investors will lose out on chances to get better returns on their investment; it will interrupt innovation as entrepreneurs flock to countries with more flexible crypto regulations. In addition, job creation will take a hit and government revenues will also be affected.”
- Rajagopal Menon, Vice President at Wazirx
"Crypto is a powerful technology that is reshaping finance, commodity trading, the internet, and more across the world, and India, with its rich talent pool, can take a lead. India has battled brain drain for decades. This is a generational opportunity to reset the odds in our favour. Indian investors and innovators can benefit from the crypto-capital if there is more regulatory clarity. This will boost the economy, increase FDI, and help build a robust Web3 ecosystem in India."
- Ashish Singhal, Co-founder and CEO, CoinSwitch
Will this affect the global crypto market?
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The crypto market has a reputation for being influenced by what celebrities or billionaires on social media say about it. If Elon Musk tweets about DogeCoin, you can expect some commotion in the Doge community and that is sure to affect prices.
A few Indian crypto startups have moved base to countries with lenient tax laws and regulations.
Despite this, crypto was quite resilient when a ban was imposed on it in China and hasn’t crashed majorly when Russia recently decided to prohibit the trading of digital assets (including crypto). Citing these examples, analysts believe a ban in India would not affect the market drastically.
"Favourable regulation and adoption by countries like the United States, Singapore, UAE, and Switzerland have removed the existential threat from crypto. As such, a ban on India is unlikely to greatly impact the crypto market. The market is not pricing in favourable regulations anyway. India, on the other hand, stands to lose on one of the most promising themes of the next decade, and one in which Indians have an edge given their expertise in tech development.-"
- Kunal Goel, Research Analyst, Messari
In the past, India has made favourable conditions for small and medium businesses to thrive, which is one of the reasons why it is now a hub for unicorns that have gone on to spread their wings in international markets.
Crypto has huge potential. A report by Nascomm and WazirX says that the global ‘CryptoTech’ industry is estimated to be worth $2.3 billion by 2026 with global banks buying and embedding crypto into their financial ecosystem.
It is also said that this industry will create more than 800,000 jobs with the potential tax collection of $137 million by 2030. In the event of a ban, there is a lot to lose unless a proactive approach towards crypto is implemented in the years to come.
Published By:
Cyrus John
Published On:
Jul 26, 2022
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