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Wait, I’m a little fuzzy on crypto…

We suggest checking out our excellent explainer on all things crypto, but here is the gist of it.

Wtf is crypto anyway? Think of cryptocurrency as a casino chip. You pay rupees or dollars in exchange for a certain amount of digital tokens—based on its current exchange rate. There is no money you can withdraw or hold in your hand. This moolah only exists as numbers on your computer.

Unlike a casino chip: its value gyrates wildly based on how many people are eagerly buying that currency. But unlike shares, there is no government authority to oversee the trades—as it might do a stock exchange—or manage the value of any given currency. So there is no safety net if the bottom falls out.

Why folks love crypto: No bank or government collects fees on any transaction. And you can also use your crypto to buy anything you want—without your transactions being seen or recorded by such institutions. You can see how this might be attractive to privacy fiends and drug dealers alike. Most often, lots of people buy cryptocurrencies as a form of investment—hoping its value will soar and make them a fortune. The very volatility is its great appeal. Last but not least, thanks to blockchain technology (which we explained here), every transaction is very safe.

The Indian crypto gold rush: 

• There is no official data but industry estimates suggest there are 15-20 million crypto investors in India—with total holdings of around Rs 400 billion ($5.39 billion or Rs 40,000 crores). 
• Crypto exchanges have been booming in recent months. In October—over the span of just a few days—WazirX notched up a 167% jump in trading volumes, and CoinDCX, which recorded a 200-300% spike.
• Crypto startups like CoinDCX and CoinSwitch Kuber raised record amounts of capital—and became unicorns (valued >$1 billion) this year.
• And it's hard to miss the wall-to-wall advertising for cryptocurrency trading platforms boasting the biggest Bollywood stars as their ambassadors—including Amitabh Bachchan, Ayushmann Khurrana and Ranveer Singh.

What this means: A lot of Indians have a lot to lose if the government bans cryptocurrencies.

Ok, tell me about this bill

First, let’s start with a quick timeline:

• In 2018, the Reserve Bank of India issued an order banning all banks from dealing with cryptocurrencies. 
• In 2019, the government put together a draft version of a bill that banned all “mining, holding, selling, trade, issuance, disposal or use of cryptocurrency in the country.”
• But in March 2020, the Supreme Court struck down the RBI directive—triggering the current boom in crypto trading.
• In February this year, the government once again listed a cryptocurrency bill for the Budget session. At the time, a senior official told Reuters that it will propose a total ban. But the legislation was never introduced in Parliament.
• That same bill has now been listed once again—with exactly the same name and description.

The crypto bill: that’s been listed for the winter session is accompanied by this cryptic description:

“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.”

That’s it. The government has not shared any details of the bill or held any public consultations. And all media queries—especially about the fate of crypto investors—have been met with a wall of silence.

So what does this mean? A total ban?

Well, it depends how one interprets the reference to “certain exceptions.” Given the lack of information, we can read those tea leaves in different ways.

The RBI’s view: is that all private cryptocurrencies should be banned outright—and the bank instead will create an official digital currency of its own. In a recent meeting chaired by the Prime Minister, the RBI governor made it clear that cryptocurrencies are “a serious threat to any financial system since they are unregulated by central banks.” 

The big reasons for concern: 

“The RBI is primarily concerned about cryptocurrencies for its potential threat to the Indian rupee. If a large number of investors invest in digital coins rather than rupee-based savings like provident fund, the demand of the latter will fall. This will hamper the ability of banks to lend out money to its customers. Moreover, since cryptocurrencies are unregulated in the country and are difficult to trace, the government will also not be able to tax the amount, posing a threat to the rupee.”

The latest leak: from government and industry sources points to a middle road of sorts. Last week, they told Reuters that the government is moving away from an outright ban. It will instead only allow cryptocurrencies that have been pre-approved by the government to be listed and traded on exchanges—holding any other kind will become illegal. 

But, but, but: A pre-verification approach will put a big damper on the crypto market—as it creates “obstacles for thousands of peer-to-peer currencies that thrive on being outside the ambit of regulatory scrutiny.” And that seems intentional. The government could also want its cut of the approved crypto action:

“A senior government source said investors ‘will have to pay over 40% on any crypto gains so far’, adding that additional goods and services sales taxes, and securities transaction taxes, could be levied on top of any capital gains taxes.”

Also this: The new rules are likely to discourage marketing and advertising of cryptocurrencies—to stem the rising tide of small-time investors. And these burdensome restrictions may just be initial steps toward what the RBI wants: a total ban + one official crypto currency.

All this sounds gloomy for crypto in India…

Oddly enough, those in the crypto biz still sound exuberantly optimistic. Nischal Shetty, founder of the crypto exchange WazirX, declared:

“This is a big moment for India. From a banking ban in 2018 to listing the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the Parliament’s winter session. Our nation has come a long way in these three years!”

The CoinDCX spokesperson said: “A well assessed and thought through regulation would pave the way for greater adoption of the technology and will help millions of Indians embrace this new age asset class.”

The big hope: appears to rest on the fact that the government has stepped away from an outright ban. And key members in the crypto community believe the latest draft “will be a progressive bill as compared to the previous one but how progressive we will have to see.”

Point to note: Indian crypto exchanges crashed by up to 18.53% when news of the draft bill broke. So investors aren’t feeling quite that cheery.

The bottomline: All governments have very legitimate concerns around financial instability, terror funding, money laundering and tax collection. And crypto supporters have not yet addressed these problems fully. What is up for debate is whether banning such currencies is the right solution. There are plenty of other options on the table.

Reading list

Coindesk and Business Insider have the most analysis of the latest bill. Reuters via Mint has the scoop on the current thinking inside the government. Network18 has the most details on the RBI view. The Wire looks at national security concerns. Mint offers a thought-provoking list of five reasons to be sceptical about bitcoin—and other such free floating digital currencies. This must-read New York Times piece analyses the core crypto claim—that programming code is safer and more trustworthy than a government when it comes to your money. And for an easy-to-understand guide to cryptocurrencies, blockchains and NFTs, check out our explainer—which has its own reading list.