The Reasons why the Indian Government is Cracking Down on Crypto

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India is poised to crack on its growing cryptocurrency trading by introducing an amendment to the law that is expected to be introduced in the parliament later this month.

The specifics of the law are in doubt. The government is aiming to prohibit all digital private currency, with some exceptions.

India is hoping that a ban could open an avenue for the Reserve Bank of India – the country’s central bank — to have control over digital currencies despite concerns about the absence of sophisticated legislation on data protection.

The Central Bank has frequently warned that the cryptocurrency market could cause “serious concerns on macroeconomic and financial stability,” as Prime Secretary Narendra Modi in November said, cryptocurrency may “spoil our youth.”

The government has cautioned that crypto markets that aren’t regulated could provide a means to launder money, fraud, and financing of terror.

At least eight cases of cryptocurrency-related frauds are under investigation by the Directorate of Enforcement, India’s agency tasked with fighting financial crime.

However, despite the warnings of the government and the details of the bill that are hidden Many cryptocurrency investors are hopeful that they’ll be allowed to trade.

“Even if there are restrictions imposed by the government, I hold multiple trading accounts in domestic, as well as foreign exchanges,” Pritha Sengupta who is a 25 years old business owner said.

“Some of my trades have resulted in very attractive returns… almost over 500 times and bank deposits hardly give us less than 7% in a year,” Pritha said.

Unaffected by warnings from the government as a graduate Manisha Singh believes that the crypto market is a “great way to build up wealth” in India.

“The best part is that it helps us invest in small amounts. I have sold bitcoins at a profit,” Singh stated.

India’s cryptocurrency boom

India is now one of the largest countries in Asia for cryptocurrencies, and also one of the fastest-growing markets in the world. India has 15 domestic crypto exchange services.

Between 15 to 20 million people in India are believed to have cryptocurrency, with total holdings of around $6.5 billion (EUR5.31 billion) according to industry statistics.

The demand for blockchain technology and cryptocurrency has been growing rapidly in recent years, particularly when COVID-19 was in lockdowns during which a significant portion of the nation’s inhabitants was forced to stay at home.

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The crypto market in the local area was booming after it was ruled by the Supreme Court overturned a previous ban in January of this year. It grew 641 percent between June 2020 to June 2021 according to research firm for cryptocurrency Chainalysis.

Bitcoin had an annualized return of 66%. — together with other cryptocurrencies Mana, Dogecoin, and Ethereum — were traded the highest in quantity during the holiday period of Diwali in early November.

Cricket and film stars have also supported local cryptocurrency exchanges, by directing ads for platforms such as CoinSwitch Kuber or CoinDCX Both of which have increased their social media marketing campaigns.

Indians are expected to invest over $10 billion in the cryptocurrency market in 2030, according to an analysis by the trade association Nasscom.

However, when the speculation about proposed legislation on cryptocurrency began last month, the prices of the most well-known digital currencies such as Bitcoin, Ethereum, and Tether plunged as high as 25% briefly.

Demands for the establishment of a regulatory framework

Lekha Chakraborty, professor at the National Institute of Public Finance and Policy believes that cryptocurrency plays an essential role in the post-pandemic, globalized world.

“I am not worried about the political economy of crypto, because those can be tackled through efficient monetary and fiscal coordination. However, the concern is about the regulatory framework, which needs to be strengthened, especially in the cross-border transactions,” Chakraborty explained.

“Fear of crypto is overplayed. There is no retreat of globalization in the post-pandemic world. In a globalized world, digital currency can ease the transactions,” she stated.

The crypto bill is hanging in the balance

A clause proposed in the law, which is currently being discussed it would permit crypto as an asset and would prohibit its use as a form of currency or as payment.

Finance Minister Nirmala S. Sitharaman stated that the law was being revamped to reflect the rapid developments in the sector, but she did not give details of the amendments to the initial draft.

There is still a lot of speculation regarding whether laws will ban the use of cryptocurrencies or simply regulate them.

“Even keeping crypto as an asset is so speculative and volatile at this point, that it could dangerously see-saw the asset ownership landscape and impact the real economy,” economist Indira Rajaraman explained.

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