Will India face another crypto ban when Parliament is back in session?

Full Transcript

Angie Lau: Are India’s crypto ban rumors legitimate? Will India’s crypto industry continue, or is the crypto industry on the verge of the next wave of financial inclusion? 

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and the emerging technologies that shape our world at the intersection of business, politics and economy – it’s what we cover right here on Forkast.News. Welcome to the show, I’m Forkast Editor-in-Chief Angie Lau.

Now we’re talking about India today, because in mid-September, reports from both mainstream and crypto news sources said that there could be another cryptocurrency ban in the works by Indian policymakers. But it was followed by a sigh of relief when the legislation did not appear on the agenda of the parliamentary session. 

Still, it’s been a seesaw journey for the crypto story in India, because since the RBI banking ban on cryptocurrency was lifted in March, exchanges report that customer growth has increased by more than tenfold. But still, India’s cryptocurrency regulation has been clouded, and uncertainty in the traditional market is pushing investors towards DeFi and crypto. 

So you have this whole swirl of interest here, and add this to the mix: the latest notable investor to bank on the uncertain crypto industry of India is Tim Draper, who we talked with a couple of months ago right here on Forkast.News. He led a US$3.5 million Series A funding round for one of the nation’s oldest exchanges in India, in fact, the first – Unocoin. Ban or no ban, it seems like it doesn’t matter about the interest.

So let’s bring him on the show right now; here to give us a greater perspective and an insider scoop on how the industry has been reacting to these rumors is the co-founder and CEO of Unocoin, Sathvik Vishwanath. Sathvik, welcome to the show. It’s great to have you on.

Sathvik Vishwanath: Thank you.

Lau: Get us up to speed here. From March on, it was celebratory. There was just this huge interest, not only domestically within the borders of India, and the excitement from retail investors and just the average person thinking about crypto, but also externally. Since then, we have seen this seesaw effect of policymakers either threatening to ban it and/or restrict it. Where are we today?

Vishwanath: On March 4, 2020, it was a very glorious victory for the cryptocurrency market within India when the Reserve Bank of India’s notice to the banks was finally set aside by the Supreme Court. So there have been quite a few speculations on how the Reserve Bank of India could react to it. There has always been a pending bill on the table for more than two and a half to three years. Would it ever come on the table for consideration? So these are all speculations. 

But given that the draft bill was written by the committee formed by the government, it will have to follow its logical journey of coming up to the table on one fine day and then whether it gets discarded or it gets considered is a different question; it depends upon the voting that will happen among the members of Parliament itself. So once it is written, it just cannot disappear into thin air. 

So every time a new session is happening, there is a potential for that draft bill to come on the table, and I think that is where the speculation keeps on happening. Whenever there’s a session, “Oh, this time it could come on the table and if it actually gets approved, it could actually mean a ban for the cryptocurrency industry in India.” So let’s say it happens every five or six months, this will keep on surfacing. But in the end, we will at least have to wait until the list of the things they want to consider is released before they start speculating on it, but because it’s exciting news, it gets picked up very easily.

Lau: Of course. But it’s helpful to understand the minutiae of the parliamentary system in India — so, of course, if you have a draft bill, the process is that at some point, at any time the parliament is called (every six months), there is a potential of that draft bill being introduced. It wasn’t this time, so you bought yourself another six months. And potentially, we’ll see it somewhere down the line; it could be sooner, it could be later, but the fact that it was drafted… at some point, we’ll likely see it. 

So the first question is, do we know what’s in the draft bill, and how is the industry preparing for these conversations? Are there outreach efforts right now, lobby efforts to start educating policymakers and lawmakers about the impact of crypto and blockchain in India?

Vishwanath: Yeah, so this draft bill was reported in 2018. However, at that time, they didn’t make it public — it was only submitted to the government for consideration. But in 2019, the draft bill also got published for people to see. We only knew little highlights: “It should be banned and whoever is trying to do anything, even including holding cryptocurrencies, could attract a prison time of 10 years,” etc. But however, that entire draft bill was released to the public for us to see in mid-2019. 

So it was in the midst of the fight that was happening at the Supreme Court that the Reserve Bank of India notice should be set aside. It’s obviously not favorable at all, almost. And it also is quite outdated if it can be compared to today, given the speed at which the industry develops, two and a half years is a lot of time. And also when the bill did come on the table for the Supreme Court, it was not given a weightage. In fact, because it was not given a weightage, that eventually led to the Supreme Court ordering that the notice from Reserve Bank of India should be set aside.

I think the apt way for us right now is, whenever the bill comes on the table in parliament for discussion, we will have to consider whether it will be obviously a voting — so where the member of parliament will be either saying yes or no. In all likelihood, it will be a ‘no’ as of this time because of our influence. The industry has done this influence and the media has done this influence on why it should be there in India — to not lose the opportunities. It could be employment, it could be investment opportunities, it could be innovation, etc. Once it eventually becomes annulled, then there will be a need for a new committee to be formed again to understand what it is right now and how the present law of the land will apply to this and finally come up with the new balanced view.

Lau: What’s really interesting is that time is right now on your side, especially since the March reversal of the RBI ban by the Supreme Court, it really seemed to lift the gates, as it were, of interest. We saw a flood of interest from across India of people opening up accounts and being really interested in starting to invest in crypto, in alternative assets, in DeFi, and in digital assets. 

Since March, up to the moment that we’re talking right now, what has been the enterprise relationship, the exchanges’ relationship with the retail investor? Are retail investors getting the kind of customer service, the kind of security, the kind of investment products from a credible point of view that they should be given, versus what was happening two and a half years ago, which was the Wild, Wild West?

Vishwanath: It comes to customer care or any help or advice — whatever are the services the retail end customers need to eventually get, I don’t think they are deprived of that at all. But like we discussed, this particular bill also makes all of the industry players very cautious about what they can talk about. Because it is not us who can take the view that this will eventually become bigger because it is outdated or anything like that, it has to be the regulators of the members of the parliament. 

So we will eventually need to be very cautious about the message that we are giving to the industry on one side. And it has always been that the retail investors should do their own research to understand — it could be volatility risk, security risks or even the regulatory risks, whatever exists — they should be aware to get in. When it comes to all the risks, people understand because they’re investing into mutual funds or equity or commodity markets, so they understand security risks, they understand because it is still understandable for a very common man how to secure their laptops or mobile phones, etc. 

But when it comes to regulatory risk, it continues to be something new for them. It continues to be something very big for them to consume, which many times are keeping the newcomers away. But however, when it comes to the ones who are already involved in the industry, they quite understand all the different pieces of the puzzle and they also see how the industry is transforming in the rest of the world. And I hope that a similar thing will happen in India so that we don’t miss out, is what it looks like.

Lau: I mean, you’re a veteran in this space. Unocoin was India’s first crypto exchange way back in 2013. Fast forward to today: Did you think that India could get here, obviously, with just the adoption, the understanding, even the education of this space? You’ve been through quite the journey yourself. From your point of view, where do you think this industry needs to go and what do you think that regulators need to realize?

Vishwanath: I think it’s definitely a well-known fact for us that the ride would be quite like a rollercoaster ride. We have faced it in the first year and what we faced in the first year, maybe it’s like a couple of times multiplied as to what we are facing this year. And it is very similar to how the industry has grown and how the company has grown and how the team has grown, etc. It’s like one thing is getting adopted is what it looks like.

I definitely did not foresee that eventually, we will actually be able to service for about seven years and that this is how it will eventually lead. But at the core mission and vision of our statement it continues to be whatever it is, and we just strive, going forward with the same enthusiasm. 

When it comes to what it should eventually look like within India… if you see, India has some unique traits as compared to the rest of the world. At least to pick up a few, it has a very saving mentality. It is not like, say, the United States, where a lot of times people live on credit and at the end of the month when they get their salaries, they pay their credit cards, etc. Here it is more like saving. Even if there are nine or 10 dollars, they try to save three or four of it.

So there’s that kind of thing. And they love gold more than any other country, and it is very digital and tech-savvy in nature. Even the internet costs have really, really gone down, where they’re almost able to get free internet at very good speed through the telecom operator and sometimes maybe just pay like three or four dollars worth of Indian rupees to get the data plans here in India for the month. These things combined, and it is a very young nation by itself. These are all the characteristics of the country right now. Which eventually means this is the part that should be going forward. 

But on the other side, India is a very highly regulated country by itself. When it comes to monetary policies, the regulations are like tenfold the normal. All of a sudden, a new thing like cryptocurrency comes into the purview of the regulators. It also becomes important for them to understand how the rest of the world is looking like and what it means for the law of the land within India, how to make it adopted from one another. And given we have something called capital controls — so they are regulations for how the money should go out of the country and come into the country. These kinds of things need to be properly addressed for what it means when it comes to cryptocurrencies. 

Even when we see payment gateway technology, we were lagging at least about four to five years. After the United States saw the payment gateways for online e-commerce portals, it took about four or five years. Until then, all that we could do was use our credit cards to book anything in the U.S., but never do anything with it. I mean, we could never use our credit cards online in India because no such gateways existed. So it took about three to four years, eventually.

Now if you see, e-commerce through online is one of the major industries within India and it has really pushed for digitization. I think it is just the question of when it’ll eventually get adopted in India, and after that there is almost like no stopping. So my parents, who at one point of time, were very particular that they’d never want to connect their bank account online, and now they are kind of forced to use it. They will eventually become familiar and more comfortable with the new things as it goes forward. It could be the use of the WhatsApp messenger. 

So I think it eventually comes down to how much closer to the people we can build the product on one side, and on the other side, we definitely would continue to need the blessing from regulators, no matter what. But those two things combined would mean a lot for Indians and not to lose out on multiple opportunities.

Lau: I mean, that’s a great canary in the coal mine, right now — your parents. Once upon a time, they were very digitally averse and now they are very familiar, they’re getting more familiar with that and it reflects really the appetite, the increasing appetite of an entire nation. The latest response from the crypto industry to policymakers is: ‘Hey, why don’t we do a regulatory sandbox?’ What’s the proposal there? How would that work and how do you think that it would be received?

Vishwanath: When it comes to the regulatory sandbox, there are obviously the guidelines of how the KYC (know your customer) documents should be collected and how anti-money laundering laws are to be implemented, and especially, if there are any transactions that are suspicious, how do you report it? 

Even though today, the industry is ready to cooperate to their maximum extent, even if it takes a lot of resources the regulators are always there — so they want to cooperate. But we don’t have a mechanism to do that yet. So, for example, when it is banks, they have a specific channel in which they should be reporting if there are any suspicious transactions in that ledger. But when it comes to the crypto industry, we don’t have that. We could just send an email, but it’s just a one-way communication and we don’t know if it even gets checked by someone. So having it more responsive will eventually help the industry. 

And we know in which direction we are heading. If they identify something wrong, we just know it is wrong and it will eventually come back to us: ‘How come this happened to us?’ But we never had an opportunity to say that we are seeing something wrong. It is very tricky in nature. 

So these kinds of sandboxes and some mechanisms and some guidelines of how we should be accepting the transactions which are coming from the bank account and how we cannot accept the transactions coming from third parties into a different person’s account and what means a transaction is complete. 

Eventually, we don’t want someone to say that “yeah, you have taken money, but what you have given is virtual, so it doesn’t matter. It means you still continue to have the money with you — you have to give it back.” It becomes tricky. It has to get recognized. Some kind of categorization needs to happen. If it is bitcoin, then it is like a digital commodity or it’s like a currency or security or an asset. So some kind of categorization is required.

Lau: And a sandbox is what is being applied in Hong Kong — the SFC (Securities and Futures Commission) has established a sandbox that allows an opportunity for both regulators and the industry to see how in practicality, some of these transactions work in concert and with each other. 

And then on the other hand, what we’ve seen as of late, we’ve seen the SEC and the Department of Justice coming down, we saw arrests with BitMEX — this has been an ongoing investigation, and now we have seen some arrests and warrants for arrests on KYC/AML (anti-money laundering) issues, John McAfee, for tax evasion. Do you see Indian regulators following this trend that we’re seeing from the U.S.?

Vishwanath: I think when it comes to India, because we don’t have specific guidelines yet, so the ones who are filing taxes or who are doing transactions are trying to do it in such a way that it follows one or the other asset class. So either they would be treating it as a commodity or they’ll be treating it like an asset. Both have slightly different rules and regulations when it comes to both transactions and also filing of taxes. So the Indians obviously are picking up whatever is most suitable for them. But eventually for us to argue that whatever we are doing is right, it will not completely stand. On the other side, for them to argue whatever they are feeling is right, they need to have it as a guideline first. So I think once this clarity is established, it becomes more clear, but I doubt to what extent it can be applied retrospectively, to some extent. 

On the other side, the crypto market in India, we just got like more or less a pause for about two years. We literally had to push it through to come to wherever we are right now and surviving and thriving now. It could be that volumes or it could be a number of customers who want to get into this are, to some extent, limited. We haven’t really seen save hundreds of millions of dollars off of crimes happening within the cryptocurrency market in India, at least something that I’m aware of. 

But I think going forward, it becomes very essential because once the possibility exists, it will happen someday. So it probably is best when the end customer is aware of what he is trying to do, and not become a prey of such kinds of scams on one side, and on the other side, the regulators should also do it.

Lau: There’s no doubt the regulators do provide the legitimacy, the safety and security for the average retail investor — for the average investor, quite frankly. But do you think this uncertainty in the regulatory environment has influenced the trading volume in India’s crypto space?

Vishwanath: I strongly think it does, but not with at least the people who are already in the industry. But then there is a person who wants to actually get involved and is bothered about this. We are the players in the industry so we will have a little different view. But then you see a very common man and the moment he sees on the media one day that there could be a potential ban, and on the next day if he sees that: ‘Okay, this is going.’ So obviously he would be thinking many more times before getting involved. At the end of the day, what message the average customer or a normal consumer is getting really is what matters, because today’s normal consumer on the fence is tomorrow’s investor in the industry.

Lau: Yes, that’s right.

Vishwanath: So making sure that the right message is there with him. See, they have to understand that if it is unregulated, it is unregulated. but sometimes the news will be kind of confusing because it only takes one part of the view but not the other. But on the other side, even the same consumer will read the news from the other side as well. 

Eventually for him to have some kind of confidence — see one of the biggest concerns, I have asked at least a few of the common people who are aware of news on both sides is, they’re very afraid; they’re not afraid to invest today, but they are more afraid of, ‘what if it becomes il-liquefiable in the future when it is time?’ And probably they will be ready to put a smaller part of their savings into this and it could have grown up over a few years as well. 

But they’ll be depending significantly that ’okay, if something goes wrong in an emergency case, this exists to be there as like an emergency fund.’ And at that point of time, if it becomes il-liquefiable, it’s a very threatening thing for a normal consumer. So they prefer, instead of: “Even though the returns are lesser and I don’t want to be a part of something more innovative and an investment savvy in nature, so let me just go for mutual funds and I’m happy with like 10 or 12% interest.”

Lau: It’s all about education.

Vishwanath: So they will choose that part. I think clarity really matters.

Lau: This explosion that we’ve seen of interest in DeFi, India is no exception to the decentralised finance interests there. What are you hearing and feeling from both institutional and retail investors about DeFi in India?

Vishwanath: Within India, it’s more about what tokens are behind and to what extent the tokens are growing. That is actually most of the talk we hear here. But I think the talk should be more about what this means to India, and what is the industry size like when it comes to loans. On one side, you have people pledging gold to take loans; that is one of the really, really big businesses within India. 

Lau: That’s fascinating to hear that people are using their physical gold assets, which we know is a very popular asset for Indian families, and they’re actually using that to back their bets in crypto. I find that fascinating. I think it is this potential that really drew in the likes of Tim Draper, who led your Series A; so far you’ve raised, what, three and a half million dollars? You’ve got a million and a half more to go on this round. What is the interest that you are seeing from outside investors like Tim, like others in the industry about the potential of the Indian market?

Vishwanath: It’s obvious to say that India seemed like a sleeping beast when it comes to the crypto industry market. When it comes to, say, equity trading or derivatives or commodity forex, etc., India has about 17% of the world’s population, so we have our share globally, how much volume happens and what it is in India. But when it comes to the cryptocurrency market, that particular share is going down by a factor of 1% of what we are supposed to be doing.

Which eventually boils down to the fact that a huge potential exists but one invisible hard law of how the eventual regulators will see this. It only becomes clearer if you see the rest of the world; it’s very, very unlikely that India would take a different view from a lot of other developed countries who have written some kind of guidelines and have experimented with it, it has worked for them, etc.

I think the data is seeing it as a big potential market in the short term, and it is worth taking the risk on this market in the country, is what I think they would be looking at it as. One of the things I did not cover is about remittance. India is one of the biggest in-coming remitters from countries like Singapore or the UAE, U.S., etc. There are always a lot of employment opportunities that will be sought out for Indians, and then they keep sending money back home. When it comes to cryptocurrencies, what else can be better than cryptocurrency when it comes to remittances that you have to send to a specific country? However, even that actually lacks clarity today as well, but the use cases and lots of savings and opportunities really exist. Now, it will be in the hands of, eventually, Indians and regulators to figure out how to take advantage of it. So if it is there, it would be a little foolish to not take advantage of it. Eventually, it just keeps growing on one side and you’re just not a part of it. It would be a tragic story.

Lau: It is a fascinating look into India, into the emerging wealth that is coming out, the increasing interest in digital assets and cryptocurrency, and certainly the first crypto exchange in India in 2013. This has been an incredible journey for you. Thanks for highlighting what it’s been like and helping us understand from both a regulatory point of view and from the ground. It’s great to talk with you, Sathvik. Thanks for joining us on the show.

Vishwanath: Pleasure talking with you as well. Thank you for inviting me. Thank you.

Lau: And thank you, everyone, for joining us on this latest episode of Word on the Block. I’m Editor-in-Chief Forkast.News, Angie Lau. Until the next time.