After years of turning a cold shoulder toward cryptocurrencies like bitcoin, the Indian government, which has warned citizens against using Bitcoin in the past, is now studying the possibility of a legislative framework for digital currencies. India’s bitcoin industry is keen.
Bitcoin and digital currencies have made notable strides in India’s mainstream this year, aside from popularity due to booming prices. It was only February when the Reserve Bank of India (RBI), the nation’s central bank, issued a public notice that explicitly stated it had not licensed any company or entity to “deal with Bitcoin or any virtual currency.’
‘As such, any user, holder, investor, trader etc., dealing with virtual currencies will be doing so at their own risk,” the RBI stated. The authority’s statement, essentially a rehash of its stance on digital currencies from 2013, fundamentally warned investors and adopters against taking up digital currencies. The lack of acknowledgment complete with an added warning has dissuaded investors from buying into bitcoin.
The Indian bitcoin industry was not waiting any longer. While pyramid schemes abusing bitcoin began to rise, a handful of India’s biggest Bitcoin companies banded together to form a self-regulatory body. The association would also take up the role as a watchdog, warning investors of fraudulent schemes abusing digital currencies in the country.
“While we have been planning to create an association for some time, we finally pushed things after the [RBI] circular,” stated Saurabh Agarwal, co-founder of bitcoin wallet and exchange Zebpay.
Come March, Bitcoin was being discussed in the Parliament of the world’s largest democracy. One politician, belonging to India’s ruling right-wing party BJP, led the call to ban bitcoin, insinuating it to be a ‘pyramid ponzi scheme’ in need of regulation. The conversation had begun. It wasn’t long before a majority of India’s media, which sees readers in the tens of millions, erroneously reported that bitcoin was deemed illegal by authorities.
The Indian bitcoin industry had problems. Scrambling to raise awareness, the industry launched a petition, urging to the government to declare the legality of bitcoin.
By April, India’s Finance Ministry formed an inter-governmental committee to study and recommend a future framework of virtual currencies in the country. This week, the FinMin welcomed the public’s suggestions about the legal and regulatory future of digital currencies. A ban of Bitcoin is highly unlikely. Instead, the government is reportedly drawing up a regulatory framework alongside plans to introduce taxation of bitcoin investments, according to one recent televised CNBC report.
In a conversation with CCN back in February, a bitcoin executive opined that digital currencies are unlikely to be a priority, at the time.
Sathvik Vishwanath, CEO of India’s leading bitcoin exchange UnoCoin, stated:
India’s bitcoin trading volumes are relatively small compared to other countries in the world. So, it may not be a priority, yet. First, the RBI will need to understand the bitcoin ecosystem before regulating it.
As it stands, the committee is tasked to provide its research of digital currencies to help authorities understand the technology.
Its tasks outlined, are as follows:
- Taking stock of the present status of Virtual Currencies both in India and globally;
- Examining the existing global regulatory and legal structures governing Virtual Currencies
- Suggest measures for dealing with such Virtual Currencies including issues relating to consumer protection, money laundering, etc; and
- Examine any other matter related to Virtual Currencies which may be relevant.
India’s bitcoin industry is welcoming the move.
“By setting up a high-level committee to study and give suggestion on Virtual currency regulations, the government has again shown their keenness to study, understand and take well-thought decision,” stated Zebpay’s Agarwal, according to Indian publication MoneyControl in a report today.
“[M]aking sure [bitcoin] trades happen only through the person’s bank account and some way of reporting suspicious transactions to the authorities would help the ecosystem and aid the orderly growth of bitcoin in India,” added Vishwanath, seemingly calling for an end to peer-to-peer cash trading of bitcoin.
Meanwhile, a lack of mining clout and the surging demand for bitcoin amid its ongoing price boom has resulted in soaring premiums in buying the cryptocurrency in the country.
The cost to purchase one bitcoin on Unocoin, India’s best-funded bitcoin exchange, is ₹230,598 or $3572. A premium of over $850 compared to average USD trading markets.
Such is the demand in India, that one of the country’s top three exchanges is currently shuttered on a temporary basis, catching up to pending deposits and withdrawal transactions during an “exponential growth” of bitcoin users.