India’s Supreme Court recently overturned a ban on banks transacting with cryptocurrencies. In its decision, the high court stated that the Reserve Bank of India (RBI) had not adequately demonstrated that cryptocurrencies are in some way harmful to Indian citizens or the country as a whole. Knowledgeable legal experts in India claimed that the crypto banking ban was based on the RBI’s stance that the typical uses for cryptocurrencies were nefarious in nature — drug trafficking and terrorist financing — and therefore the government should restrict any enabling technologies wherever possible. Other industry players argued that the ban was simply too blunt and had not fully stated both sides of the case for and against cryptocurrencies.
Trading in cryptocurrencies never fully ceased during the ban period from 2018 to 2020, and the Supreme Court’s decision released a flood of pent-up demand for crypto-assets. Start-ups and established industry players alike sprang to life to service the new found demand.
“We saw nearly a 10x spike in sign-ups, post the Supreme Court judgment. The BTC/INR (bitcoin to Indian rupees) trading pair has seen 78.36% growth in the past 50 days,” said Sumit Gupta, founder, CoinDCX, who added that the exchange has acquired 50,000 users in less than 50 days.
The ideal environment for cryptocurrency growth
India is an ideal country for cryptocurrencies to flourish. Among the many drivers of cryptocurrency demand, three main ones stand out:
- Currency instability and mismanagement: The Indian rupee continues to be a weak currency on international markets, losing almost half its buying power over the last 10 years. In addition, the government has made some punishing moves in the last few years such as demonetization. Together, these events have led to an erosion of confidence in the rupee.
- Population size: India’s scale boggles the imagination. With a total population of approximately 1.35 billion and a rising middle class of around 300 to 350 million, there’s a growing cohort of Indians who have the disposable time and income to buy cryptocurrencies.
- Huge domestic and foreign remittance traffic: India is already the world’s largest international remittance market, taking in approximately $83 billion in 2019. Less well known, but just as powerful is the internal remittance volume that is unmeasured but huge; a product of about 139 million migrant workers throughout the country.
Lacking in regulations
That all sounds great for cryptocurrency generally, but there’s one critical element missing — a regulatory framework that enables crypto-ownership and trading. Without that legal and regulatory framework, crypto-buyers and sellers are flying blind and risking everything on a bet that the RBI or another government entity will come up with industry-friendly or at least industry-tolerant regulations.
Companies have gotten in on the act as well. Recently, Ripple released their version of what it would take to clear the way for large scale crypto-activity. Their white paper, titled “The Path Forward for Digital Assets Adoption In India,” is a 36-page tome filled with specific, thoughtful recommendations for the changes in India’s regulatory structure required to enable large-scale adoption and use of digital assets.
The report begins, “India is at an inflection point in fintech innovation. The country’s government and policymakers have the opportunity to foster responsible adoption of new digital asset and blockchain technology by creating transparent, principles-based regulatory frameworks that support it.”
All true. All reasonable. And it’s going nowhere. Fast.
An end to a promising future?
A group of Indian lawmakers reportedly have been working on legislation that could ban cryptocurrency once and for all. No crypto at all for anyone.
That would be an easy, if blunt solution to what Indian government officials see as a technology that only enables bad activity they are trying to stamp out. Cryptocurrency generally has had a spotty reputation. Incidents of fraud, theft, terrorist financing and criminal activity have characterized the history of digital currency assets so far. Indian lawmakers and regulators see that history and react with disdain, rejecting the new technology in its entirety.
Further, cryptocurrency is seen as a tool for wealthy people to move outside established government controls and monitoring. Questions about the regulation and use of cryptocurrencies miss the point Indian lawmakers are focussed on, which simply put is “Why do we need this?” and “Who does this help?” Enabling wealthy Indians to move assets freely within and outside India is not on the government’s agenda.
Without a clear use-case that benefits the Indian government, and therefore the general Indian population, there’s simply no call to enable cryptocurrency in India. In the end, it’s easier to ban it than it is to regulate it. Unfortunately, white papers like Ripple’s begin with the assumption that the Indian government and, specifically the RBI, want to enable cryptocurrency, or at least see the need to do so.
Draconian anti-cryptocurrency legislation is now under formulation by high government officials.
Ultimately, India’s enormous and chaotic parliament will decide the issue of whether Indian citizens and businesses can own and use cryptocurrency. The current direction of government thought seems to be banning it one way or another. As long as the drift is in that direction, Indian participation in the emerging world of digital assets will remain tentative at best, consisting of daring individuals seeking speculative gains. Meanwhile, businesses and other scale-level users will have to wait for legal clarity before India will be a player in crypto of any import.