Current status of Bitcoin and crypto in India:
- On 4th April, Supremecourt has made RBI banning of crypto unconstitutional.
- Bitcoin and other cryptos are not banned in India.
- You can now buy/sell crypto using your Indian bank account.
- You can still use Bitcoin to pay someone or to receive money. Just like any P2P payment.
- You can withdraw money from Bitcoin earning to your bank account
- You should disclose your Bitcoins gains in Income tax, and pay taxes like any other income.
How it all started?
Before, I share the milestone of Bitcoin and Cryptocurrency in India, let me tell where is the confusion started?
A lot of people think Bitcoin is Banned in India, which is not the truth.
The truth is:
In April 2018, RBI has directed RBI regulated entities (Example Banks) to stop servicing individuals or businesses dealing with or settling virtual currencies like BTC or ETH, with immediate effect.
This was unconstitutional of RBI to do that, and this made some of the top Indian exchanges of that time to shut their shop or move out of India.
However, some of the innovative exchanges like Wazirx, BitBNS and a few others took this matter to the supreme court. The court decision is still pending, but RBI has made it clear that they have not banned crypto in India.
Major timeline of Bitcoin India history:
India’s first comment on Bitcoin came in December 2013:
The creation, trading or usage of VCs including Bitcoins, as a medium for payment are not authorized by any central bank or monetary authority. No regulatory approvals, registration or authorization is stated to have been obtained by the entities concerned for carrying on such activities.
India’s next comment on Bitcoin came in February 2017:
The Reserve Bank of India had cautioned the users, holders, and traders of Virtual Currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.
The Reserve Bank of India advises that it has not given any license/authorization to any entity / company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.
India’s next comment on Bitcoin came in December 2017:
Attention of members of public is drawn to the Press Release issued by the Reserve Bank of India (RBI) on December 24, 2013, cautioning users, holders and traders of Virtual Currencies (VCs) including Bitcoins regarding the potential economic, financial, operational, legal, customer protection and security related risks associated with dealing with such VCs.
Vide press release dated February 1, 2017, RBI has also clarified that it has not given any license/ authorization to any entity/company to operate such schemes or deal with Bitcoin or any VC.
In the wake of a significant spurt in the valuation of many VCs and rapid growth in Initial Coin Offerings (ICOs), RBI reiterates the concerns conveyed in the earlier press releases.
Feb 2018: Finance ministed of India statement
Lastly, this statement by the Finance Minister, which has been misinterpreted to a whole new level.
The Government does not consider Cryptocurrencies “as Legal Tender or Coin” and will take all measures to eliminate the use of these Crypto Assets in Financing “Illegitimate Activities” or a Part of the Payment System.
Which further meant that cryptocurrencies like Bitcoin are not banned India but the Indian government will be consciously cracking down the illegal activities that happen via BTC or other cryptocurrencies and this is similar to keeping a check on illegal activities in USD or INR terms
5th April 2018: RBI Circular
“Rapid changes in the landscape of the payments industry along with factors such as the emergence of private digital tokens and the rising costs of managing fiat paper/metallic money have led central banks around the world to explore the option of introducing fiat digital currencies. While many central banks are still engaged in the debate, an inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency. The report will be submitted by end-June 2018.
Technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system. However, Virtual Currencies (VCs), also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity, and money laundering, among others.
Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated with dealing with such virtual currencies. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately.
January 21, 2020: RBI Confirms Crypto Not Banned in India
During a supreme court hearing, RBI replied (As narrated by the counsel for the Internet and Mobile Association of India (IAMAI), Ashim Sood)
The Reserve Bank of India has said it had not banned cryptocurrencies such as bitcoin in India, but only ringfenced regulated entities like banks from risks associated with trading of such virtual instruments.
March 4th 2020:
Supremecourt has legalised Bitcoin and crypto trading, and considered RBI ban as unconstitutional.
Strong reaction by Crypto India community after April 2018 RBI announcement:
The April 2018 announcement by RBI brought many strong reaction from Indian crypto community. A lot of media houses believed it was a ban. A lot of exchanges, and notable personalities replied to the statement:
Coinome has just released a statement
Also, according to their activity on Twitter, it seems they might remove INR completely in the future and let users trade using crypto-crypto pairs.
We are now live with four more crypto-crypto markets! Coinome releases BCH/BTC, ZEC/BTC, DASH/BTC and BTG/BTC markets. Happy trading 🙂#BCH #ZEC #DASH #BTG #BTC #bitcoin #BitcoinIndia #coinome #cryptocurrency #CryptocurrencyNews #cryptocurrencies #Crypto #Blockchain https://t.co/SlHaMnpKM7
— Coinome (@CoinomeOfficial) April 6, 2018
Note: Some of the above exchanges has been shut down since then.
It’s About The Future of Blockchain & Cryptocurrency In India
Here, I want to discuss the implications of the step by the Indian government and also how the scenario might play out in the coming days/weeks as well as long-term.
We acknowledge that the issue of Bitcoin and cryptocurrency regulation has been a persistent and painful problem due to its decentralized nature. Also, we empathize with the fact that the government has done this to protect Indian consumers who are rather ignorant and often lack sufficient education regarding many obvious crypto-related MLM scams. The classic example is one of Amit Bhardwaj who scammed Indians as well as other people around the world.
But do you think RBI’s reaction is justified?
If you ask me, NO!
Instead, they should have put some more thought into this before taking such an extreme step to impend the innovation happening around cryptocurrencies and blockchain.
Well, you might argue this will stop undisclosed investments in cryptos and also paralyze money laundering happening through cryptocurrencies.
However, if there is a technical person who wants to get into the blockchain, the easiest way for him/her is to have the first-hand experience of dealing with BTC or ETH like currencies through exchanges in India.
But when a government does something like this, it kills the curiosity of the techie and hinders his indulgence in the technology.
This is like killing the minuscule blockchain or crypto market of India with your own hands.
And if that’s not enough, RBI says they will launch their own version of centralized digital INR on the back of the same tech i.e. blockchain, the growth of which they are impending with their own actions. And it even gives a hint that the government was unable to regulate decentralized cryptocurrencies in the right way which has forced them to take this extreme step.
But this is either intentional hypocrisy or simply ignorance of the fact that “Blockchain became blockchain because Bitcoin introduced it”.
And this is true because I highly believe that reducing exposure to cryptocurrencies like BTC or ETH will impend India’s growth in the global blockchain and crypto space.
That doesn’t mean that I support crypto scams. They need to be stopped but that can only happen through proper education. Ceasing the growth of many because few are misusing it is not the right thing to do.
Learning From Other Country’s Bitcoin Ban (Plus The Good Regulations)
India is not a new candidate in the list of countries banning Bitcoin or other cryptocurrencies. It is, in fact, the 8th country to do so.
China, as we all know, started cracking down on cryptocurrency exchanges and ICOs in the last quarter of 2017. And as the scenario stands there in China, Bitcoin and cryptocurrency exchanges are totally banned as Chinese government issued a similar message to Chinese banks to pack-up their services to any individual or business related to cryptocurrencies.
But that didn’t stop investors or innovators to play with or buy/sell cryptocurrencies. It dealt a great blow to the overall crypto market but there are alternatives that flourished. (We will talk about those alternatives further in the article from India’s perspective).
South Korea made its law more stringent but have no intention to ban or suppress cryptocurrency (market). Instead, if you are a government official in Korea, you are banned from HODLing or dealing with cryptocurrencies failing which you can face disciplinary charges.
In other news:
- Australia making new regulations for crypto exchanges.
- US banks banning credit/debit cards purchasing cryptocurrencies.
- US crypto exchanges being licensed.
- Japan Licensing crypto exchanges.
- US SEC being thoughtful on crypto regulations.
Needless to say, countries like Japan, US, Korea, and Australia, who have exercised extreme caution in building upon rules and regulations, are actually growing in the crypto and blockchain space.
We need to look at countries similar to China, and now India, to understand the implications on the flip side.
Just like China, India can witness:
1. A huge boom in the over the counter trades (OTC) through services like LocalBitcoins. A similar thing happened in China when Chinese government banned cryptos in their country.
The trading volumes after the ban jumped from 38 million CNY (September 2017, at the time of ban) to 266 million CNY (January 2018, when exchanges fled China). You can see it for yourself in the LocalBitcoins chart below.
— hodlor (@hodlornaut) February 13, 2017
2. Also, you will see a significant spike in peer-to-peer offline trading. I’m not sure how successful it will be for people wanting to buy/sell a significant amount of BTC. But one thing is sure, this will happen and a huge underground market will thrive on it.
Can you beat that? Not really!
3. India will be left behind in the race of blockchain and crypto tech as it happened during the dot-com boom. Many Indians who didn’t find Indian’s technological environment so conducive finally shifted to countries like US or Canada resulting in huge Brain Drain from India. The rest is history.
And this can be all the more true for successful exchanges businesses because they can easily shift to countries like Singapore, Hong Kong or Malta and serve the customers from there just like the Chinese exchanges did. But it will be us, Indians, who will be left behind and deprived of participation in this revolution.
4. And not to forget, this step by the Indian government will scare the hell out many newbies who have entered the crypto market recently as there is no clarity on what is happening around.
They will bid goodbye to the market and never come back impending their long-term growth due the FUD and uncertainty. Also, the whole new generation, 65% millennials, in India will be out of the ecosystem that is being encouraged by countries outside.
5. Lastly, people who want to continue will do so despite government banning cryptos or not supporting it. People who indulge scams will not change paths and those who want to earn only money will also continue. For example, at present, the Bitcoin prices in India are $1000 to $900 lower than the international market so one can easily make use of this arbitrage opportunity eventually despite whatever the government says.
So you see, people will do eventually what they think is right for themselves that’s why I think the government should not stop it if they can’t regulate it in a proper way because it will be ineffective in the long-term anyway.
Further Probable Scenarios For Future Of India’s Crypto Market
The government might reinstate its stand on crypto and might want to take a smarter step by regulating crypto exchanges through licensing. This will also help in recovery.
From an investors point of view, if you are not holding a number of bitcoins, it is probably OK to stick with them and HOLD it until the end. Of course, do respect your risk appetite in this case of HODLing.
You can also consider moving your crypto business outside India. Even if you are a trader, you can still consider opeaning a business in country like Singapore, Malta, USA sitting here in India. Since, these countries have a clear regulation, it will not be a problem for you. Move over, you can bring money to India, pay income tax, and enjoy the rest of money to live a dream life. There are few other similar solutions that you can take advantage of without breaking any law or violating RBI guidelines.
This should not be a problem.
And if you ask me, I never invested more than what I can afford to lose so I will be HODLing to my little chunks as I am long-term bullish on BTC.
However, according to your own unique condition, thoroughly assess what needs to be done with your cryptocurrency investments.
Feel free to use the comments section below to discuss what the long and short-term implications of this step by the RBI can be.
Also, stay updated on the latest happenings by watching this space on CoinSutra as we are closely monitoring this situation.
Update: The crypto matter is in the Supreme Court Of India and there have been some interesting statements from RBI on the crypto ban. Below is the summary of it:
#RBI filed Counter Affidavit in Supreme Court and stated many interesting points:
There is no complete ban on VCs.
RBI not against Blockchain.
RBI has done its homework before issuing circular.
And many more…
Watch complete analysis here https://t.co/bFE88ikdsc
— Crypto Kanoon (@cryptokanoon) September 16, 2018
Also, check out:
- Top Ways To Earn Money From Cryptocurrencies
- How To Start Investing in Bitcoins – The Beginners Guide
Harsh Agrawal is the Crypto exchange and bots expert for CoinSutra. He founded CoinSutra in 2016, and one of the industry’s most regarded professional blogger in the fin-tech space.
An award-winning blogger with a track record of 10+ years. He has a background in both finance and technology and holds professional qualifications in Information technology.
An international speaker and author who loves blockchain and crypto world.
After discovering about decentralized finance and with his background of Information technology, he made his mission to help others learn and get started with it via CoinSutra.
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