Bitcoin and cryptocurrency enthusiasts could be anxiously tracking India’s parliamentary proceedings this season. Usually, the Budget time is what captures their interest. But, there is news that the current session will see India clamping on cryptocurrencies through a new law.
Two Finance ministers (current and former), several senior officials at the Finance ministry and the banking regulator have expressed the dangers of cryptocurrency-trading. Some called it a fraud, dabba-trading and pointed out bitcoins could be used in illegal activities such as hawala, human-trafficking, funding terrorism etc. The Reserve Bank asked banks not to honour cryptocurrency and related transactions on their networks. The RBI’s notification was quashed by the Supreme Court in March this year. An inter-ministerial committee headed by Subhash Chandra Garg, in 2019, proposed banning cryptocurrencies except those backed by the government.
The bill is not in the agenda of discussion this Parliament session. However, there are ways to introduce one. That, according to reports from ET and Bloomberg that cite anonymous sources as suggesting the possibility of such a law.
A ban may hurt the finances of at least 50 lakh Indians (industry estimate) who own popular cryptocurrency flavours. The blanket-ban will also hurt the ecosystem – developers, coders and exchange houses.
Probir Roy Chowdhury, Partner at J Sagar and Associates finds suggests that a ban could be a “retrograde move,” if announced.
“The need of the hour is regulation not prohibition. We should take guidance from Singapore, our neighbouring country, which has regulated and allowed cryptocurrency trade. With regulatory oversight and guidance, it may be a boon for the fledgling Indian economy to allow cryptocurrency trade and consequently investments in India,” he says.
Markets such as South Korea and Singapore earn tax revenue on cryptocurrencies. Singapore’s elaborate tax mechanism for cryptocurrencies is based on whether it was a product/service or an ICO (Initial Coin Offering). South Korea, on the other hand, has adopted a flat rate on cryptocurrency transactions. Starting from 2021, South Korea will tax profits booked under bitcoin at 20 percent. Countries such as Slovenia and Germany too tax bitcoin assets.
In India, the tax-agency has been struggling to meet collection-targets ahead of the Covid pandemic. With the lockdown situation, tax revenue on cryptocurrency could be tall to ignore for the finance ministry.
BEYOND TAX REVENUE:
Probir adds, “regulation in cryptocurrency trading will help tap opportunities in the Crypto-fintech and exchange space.”
“It could also lead to jobs and investment opportunities,” he suggests.
Some of the unicorn startups from the bitcoin and blockchain category includes bitcoin-hardware producer Bitmain ($12 billion), Coinbase ($9 billion), Ripple Labs ($5 bn), Circle Internet Financial ($3 bn), Canaan Creative ($3 bn), and Binance ($2 bn). The numbers in brackets indicate their valuation in 2019. Other popular bitcoin majors include, Block.One, Dfinity. Also, every technology company in the world has been keen on a blockchain like system or a cryptocurrency variant. Take for instance, Facebook’s Libra which is in regulatory limbo.
Employee-count of Unicorn and popular Bitcoin/Blockchain firms:
- Bitmain: 2,500 employees
- Coinbase: 1,200
- Ripple Labs: 550
- Canaan Creative: 300
- Binance: 1,000
- Bitstamp: 500-600
India’s nascent blockchain industry got global attention after Binance acquired WazirX (a popular platform) in 2019.
According to Probir, opportunities in the blockchain space may also arrive in the form of technology and coin development activities. Facebook’s Libra project (currently in limbo) is one such example.
Blockchain from an enterprise perspective is already making inroads with firms such as Reliance actively using the technology in its business processes. Banks such as Deutsche Bank too remain invested and have platforms in their home-countries.
“Besides Deutsche Bank, there are financial firms like JP Morgan Chase that have invested big money blockchain technologies. The blockchain is the basic layer on which a cryptocurrency can be traded. Even if banks are allowed to issue cryptos in India, since they are regulated by the RBI, we could look at several opportunities opening up,” explains Probir.
“RBI and SEBI can help foster innovation and regulation together. We can inculcate confidence and plug loopholes. We did that with data protection bill.”
Will India’s policymakers fix a bill this session? Probir says, “I have a feeling that it may be passed.”