Govt panel recommends ban on virtual cryptocurrencies, so if you still have some crypto units lying somewhere, we tell you what to do with them
The committee is favourable towards launching an official digital currency
A high-level government panel on virtual cryptocurrencies has recommended a ban on all virtual cryptocurrencies in India. By and large, these include Bitcoin and Ripple which are not under government control. The committee submitted its report on 23 July 2019, along with a proposed draft bill, Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019.
However, the move has not come as a surprise. “The writing was on the wall regarding cryptocurrencies since April last year, when the Reserve Bank of India (RBI) barred banks and financial institutions from dealing with cryptocurrencies. That was just the trailer, this report and draft bill have crystallised this matter now. If this proposal is approved, India will join the countries which have banned cryptocurrencies,” said Nirav Maniar from International Business Advisors (IBA), an accounting, tax and legal advisory firm.
The committee is, however, favourable towards launching an official digital currency. “As virtual currency and its underlying technology is still evolving, the group has proposed that the government may establish a standing committee to revisit the issues addressed in the report as and when required,” it said.
The ban on virtual currencies comes along with a fine of ₹25 crore and imprisonment up to 10 years for any activity related to virtual currencies, which is carried out by individuals or companies. So if you have a few crypto units lying forgotten in some account, there may be consequences to bear. We tell you what you should do and what such a law entails.
There are several implications, both for India and cryptocurrency traders in India.
Naimish Sanghvi, founder, CoincrunchIndia.com, a crypto blog, said, “Technology changes everyday. If you see the draft, it’s dated February 2019, and was published only in July. But from the time it was drafted until today, the virtual currency world has undergone several changes. Japan has regulated cryptocurrencies. In G20, it was declared as no big threat. A draft and eventual law like this will simply lead to brain drain to more favourable countries.”
In October 2018, India’s biggest exchange Zebpay moved out to Malta after RBI tightened the noose, and more such firms may do the same. Shanghvi said, “Most exchanges have entities outside, they only have a base in India.”
The startups, especially, have taken a hit. “The sad part is for startups who have been in technological solutions, especially around cryptocurrencies. For them, this move is a set back,” said Maniar. Even venture capitalists (VCs) and angel investors who have backed crypto startups will be affected. “In an unfavourable environment, startups will simply pack up and go to other countries where it is easier to do such business. The Indian government in such a case loses revenue,” said Vishal Gupta, CEO, Postgram.com, a social media site, and crypto influencer.
A move like this is likely to push cryptocurrencies into a darker place. Gupta said, “It’s really a bad idea for the government to ban cryptocurrency in India, because it will drive transactions underground. This will result in a huge black economy. Instead of banning, they should have made virtual cryptocurrencies legal and have strict regulations.”
Experts believe that the draft bill, even when implemented, won’t be able to stop crypto transactions. Gupta said, “Transactions are completely online, it’s impossible to tell where they are happening from. In the cryptocurrency world, data, internet and millions and millions of servers are involved.”
As RBI banned banks to deal with individuals or businesses dealing with crypto, many individuals have moved such assets out of India, already, said experts. Since the money is no longer in the regulatory system, the transactions can’t be traced, they added.
What should you do?
The government has already clarified that the country has not put any blanket ban on trading in cryptocurrencies yet. “If this bill is passed, holding, selling and trading will become a criminal activity. This document cannot be claimed as the final. There will have to be a provision for an exit plan to ‘declare’ and ‘dispose’ the cryptocurrencies which are currently being held,” said Shanghvi.
So if you hold cryptocurrencies, should you get rid of them now? Sanghvi said, “Don’t do anything as a reaction to this move. It is just a draft bill, and when the law changes, you will do what you have to do.” To hold or sell is your decision as a participant in the cryptocurrency world, but we suggest you weigh all the risks and take an informed decision. Mint does not recommend new investments in crypto given the risks involved and lack of clarity on the legal front.
A cryptocurrency user, who spoke to Mint on the condition of anonymity, said if someone needs to liquidate cyrpto holdings, the person can do so through another person based in another country. Many individuals trade through family or friends in other countries.
Meanwhile, the crypto world remains ever-changing. Prathibha Bangera, lawyer at Mumbai-based law firm Toprite Juris, said, “The Constitution of India Article 19(1)(g) gives us the fundamental right of freedom to conduct business in any sector or trade.” If this angle is pursued by crypto startups and investors, things might get more interesting. Gupta concluded, “At a global level, the industry will keep on growing, innovation will keep on happening, and India will lose out its edge, if after five years they decide to make cryptocurrencies legal, it would be too late, and they will simply end up playing catch up.”