India with $2.8 trillion Gross domestic product (GDP) and $9.56 trillion Purchasing power parity (PPP) has shown growth in investing in cryptocurrency since the last year. After the green signal on the trading verdict of the Supreme Court in 2020, this growth has been observed. Cryptocurrency holding a market cap of $1.9 trillion as of date is seen as a point of concern with no channelized guideline in India for its regulations since the year 2013.
This blog will cover a few big press releases and verdicts by authorities of the Indian Government in the time span of 2013 to 2021. Before understanding the Imposed regulations, Let’s understand a brief content on what is a cryptocurrency and the role of cryptocurrency exchange websites.
What is Cryptocurrency? Learn before investing in Cryptocurrency
A cryptocurrency (or “crypto”) is an encrypted string of data or a hash, encoded to signify a unit of digital currency. In general, cryptocurrency resembles crypto coins or crypto-tokens both having different purposes to serve running on blockchain technology. Read more on Blockchain Technology.
Crypto coins are built into the Blockchain aka Layer 1 aka Protocol Layer having their own independent blockchain. Used for sending and receiving digital payments. Example Bitcoin(BTC), Ethereum(ETH), Cardano(ADA), etc.
Crypto tokens are built above the Blockchain Layer 1 for the purpose of using decentralized apps (dapps) using smart contracts serving as assets. Example Enjin(ENJ), Decentraland(MANA), Matic(MATIC), etc.
Role of Indian Crypto Exchange Websites? Learn before investing in Cryptocurrency
A cryptocurrency exchange aka digital currency exchange (DCE), is an online platform that allows customers to trade cryptocurrencies for other assets, such as conventional fiat money (Money issued by the Government authorities: Ex: Rupee, US Dollar) or other digital currencies.
Exchanges accept debit cards, credit card payments, Internet banking transfers, or other forms of payment in exchange for cryptocurrencies. User investing in Cryptocurrency is usually offered the below mentioned common operations on the exchanges
- Send and receive crypto to cryptocurrency wallet.
- Trade crypto like the stock market.
- Exchange electronically transferred money and digital currencies with Banks
With no account opening or annual renewal fees, exchanges do charge some brokerage of 0.02% to 0.08% on trading only.
2013-2018: Press Release by RBI & Ministry of Finance
India has remained uncertain about Cryptocurrency until the Supreme Court in March 2020 has considered cryptocurrency use as legit. Previously, RBI and The Ministry of Finance have released a few guidelines and orders regarding the usage of cryptocurrency leading to permanent ban-like conditions in 2018. Dividing these press releases‘ impact before and after the interference of The Ministry of Finance, I have tried to summarise all points here.
Between 2013 to 2017
Three press releases from the Reserve Bank of India (RBI) in December 2013, February 2017, and December 2017 had created doubt in the investors who were investing in cryptocurrency with no support assurance from the central authorities in case of fraud.
December 24, 2013: RBI 1st press release
RBI stated that it is presently examining the issues associated with the usage, holding and trading of VCs (Bitcoin) under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations.
February 01, 2017: RBI 2nd press release
RBI has not given any licence/authorisation 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.
December 05, 2017: RBI 3rd press release
In the wake of 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.
Finally, The Ministry of Finance has issued the statement on Virtual ‘Currencies under the tag of Ponzi Schemes.
December 29, 2017: Finance Ministry formal press release. Read the complete press release here.
Concluding the press release, The Ministry of Finance has stated “The Government makes it clear that VCs are not legal tender and such VCs do not have any regulatory permission or protection in India. The investors and other participants, therefore, deal with these VCs entirely at their risk and should best avoid participating therein”.
This press release in December from the Finance Ministry has created complete chaos within the investors and online exchange platform owners. Resulting in a lot of investors encashing or withdrawing their cryptos from the Indian exchanges.
Soon after the interference of the Ministry of Finance, RBI has again issued one more press release before completely banning cryptocurrencies.
April 05, 2018: RBI 1st press release after the Ministry of Finance
Under point III. Currency Management, Ring-fencing regulated entities from virtual currencies heading it was stated that
RBI 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 that already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately.
July 05, 2018, the complete ban on cryptocurrency exchanges with banks has shattered the hope of Indians investing in cryptocurrency.
Right after that RBI issued a circular giving a three-month period to all financial entities to end their business relationships with digital currency-related exchanges. The period ended on July 05, 2018, making traders not be able to liquidate their crypto assets from crypto exchanges to financial entities.
2020: Verdict of Supreme Court and NITI Aayog Report
With the complete ban on cryptocurrency in 2018 all hopes on Blockchain Technology and trading were finished, not until the Supreme Court had interfered on this matter on March 04, 2020, based on the petition filed against the ban by RBI.
Read here, the Judgement Copy of the Supreme Court
Later, NITI Aayog released a paper on Blockchain in July 2020, covering the need and scope of Blockchain in India along with the cryptocurrency regulation. Giving some hope for investing in Cryptocurrency again.
NITI Aayog is an Indian Govt. controlled body responsible for these four main heads activities:
- Design Policy & Programme Framework
- Foster Cooperative Federalism
- Monitoring & Evaluation
- Think Tank and Knowledge & Innovation Hub
After these strong verdicts coming from the Government bodies, RBI has started exploring the possibility of Indian Rupee stable coin.
Recently, on 01 Feb 2021 Indian Government has drafted a bill titled ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021′ to be presented in Union Budget.
The purpose of Bill as per the government booklet.“To create a facilitative framework for creating the official digital currency to be issued by the Reserve Bank of India. 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,”
Current legal status of cryptocurrency in India? Learn before investing in Cryptocurrency
Nischal (CEO of WazirX) has announced on April 04, 2021, via his Twitter handle that WazirX has crossed $200m in daily trading volume.
This amount of investment shows the trust of the Indian people in the government and the technology behind cryptocurrency (Blockchain Technology). While the total value of all cryptocurrencies on April 04, 2021, was more than $1.9 trillion, with BTC dominance of 55.2% and ETH having 12.2% on the global level. Read more about the need for cryptocurrency in Banking Institutions
Recently some indications by Nirmala Sitharaman (Finance Minister) and Captain Anurag Singh Thakur (Ministry of State of Finance) have given positive news to people associated with cryptocurrency.
Finance Minister Nirmala Sitharaman at India Today conclave“From our side, we are very clear that we are not shutting all options. We will allow certain windows for people to do experiments on blockchain, bitcoins or cryptocurrency.”
Earlier in this section Captain Anurag Singh Thakur (Minister of State for Finance) has mentioned the formation of the Inter-Ministerial Committee (IMC), headed by Subhash Chandra Garg (former finance secretary). The FM has already mentioned in parliament that the government will make a decision based on the recommendations of the IMC and the Reserve Bank of India (RBI) will take a call on an official cryptocurrency soon. Read more on 5 reasons to accept blockchain in India.