India’s cryptocurrency enthusiasts call New Delhi’s bluff on ban

New Delhi, India – Saurabh Shah, a 26-year-old chartered accountant in Mumbai, is not too worried about India’s latest plans to ban cryptocurrencies. He has seen similar proposals come and go before.

As a student, Shah invested in Bitcoin in 2017 right before India’s central bank barred financial institutions from executing crypto-related transactions.

“I invested in it following the buzz around it,” Shah told Al Jazeera, admitting he barely had any idea how cryptocurrencies worked at the time.

“When the Reserve Bank of India’s ban announcement was all over the media in April 2018, it scared me, but I could not withdraw my money. I am happy I never did as the Supreme Court lifted the ban later. I made fabulous gains on my initial investment.”

Even after the government announced a bill last month to prohibit cryptocurrencies, Shah does not believe an outright ban will ever happen.

“Even if it does, I have only invested the amount that I can afford losing,” Shah said.

The ruling Bharatiya Janata Party’s (BJP) bill would prohibit all private cryptocurrencies and introduce a digital currency issued and regulated by the central bank, with “certain exceptions” allowing for private currencies to “promote the underlying technology of cryptocurrency and its uses”. On Tuesday, Finance Minister Nirmala Sitharaman said the bill was being reworked to take into account the rapid changes in the industry, without offering details of the changes to the original draft.

Vidur Chhabra, a full-time crypto investor in Goa, said he doubted any ban would last as the genie was out of the bottle.

“The government and central bankers are at least 10 years behind. Even if they do ban it, they will have to revoke it the way the South Korean government is considering it now,” Chhabra said, referring to recent signs Seoul may ease its prohibition on raising money through virtual currencies.

“I am hopeful. In a world where currencies are constantly getting debased, investment in crypto makes for an obvious hedge.”

The market would seem to share his rosy outlook. While Bitcoin and other currencies fell as much as 20 per cent last week after the announcement of the bill, prices stabilised within 24 hours.

“People like us who understand the crypto space have bought mostly, in the recent downfall,” CA Aishwary Gupta, a strategist at Polygon Technology, a scaling solution for the Ethereum blockchain, told Al Jazeera. “The same people who sold suffered losses as the market recovered soon after.”

India is believed to have one of the biggest crypto markets in the world, with the technology industry body Nasscom estimating the country to be home to about 15 million crypto investors.

Driven by investors seeking returns at a time of low interest rates, the rush to crypto has led to a mushrooming of start-ups and exchanges.

In newspapers and on TV, crypto advertisements promising wild returns are everywhere to be seen. Bollywood stars such as Amitabh Bacchan, Salman Khan, Ayushmann Khurrana and Ranveer Singh have endorsed particular currencies. With mostly foreign venture capitalists investing huge amounts in different cryptos and pushing up prices before selling at the top, some retail investors have inevitably got burned.

Stories of big losses and the misuse of cryptocurrencies for money laundering and “terrorism” have spurred calls for greater oversight of the nascent industry. In November, Prime Minister Narendra Modi warned about the risk of cryptocurrencies ending up in the “wrong hands”. He cautioned that emerging technologies had the potential to be used as instruments of conflict and domination.

“I doubt there will be a permanent ban, but a temporary one is expected,” Sushil Kedia, the founder of financial markets research firm Kedianomics, told Al Jazeera. “Pulling the plug for a time period will reduce the activity in the crypto market while the government finetunes the regulations.”

Meanwhile, crypto exchanges have been clamouring to prove they can regulate themselves.

“Many of the crypto exchanges do KYC [know your customer due diligence] of each investor on their platforms,” Avinash Shekhar, the co-CEO of crypto exchange app Zebpay, told Al Jazeera. “As an industry, we have also taken note of irresponsible advertising. The number of crypto ads has gone down significantly over the last two weeks.”

Crypto literacy

Gupta said that regardless of government oversight or the industry’s efforts at self-regulation, investors had to educate themselves about the market.

“I urge investors to learn before they invest,” he said. “They should understand the demand and supply dynamics, the use cases and the credibility of people running crypto projects.”

Nonetheless, the industry is bracing for stricter regulations.

Some analysts believe that while the government is unlikely to accept the use of cryptos as private currencies, authorities may accept their use as financial assets.

“Cryptos should be classified as an asset class investment in India,” Ashish Singhal, the co-chair of the Blockchain and Crypto Assets Council, told Al Jazeera. “It is similarly regulated in many other countries, and almost all use cases of crypto are an investment and not payment. Additionally, the Indian crypto industry needs a proper framework for the movement of funds, a rigorous KYC [Know Your Customer] procedure, and a proper reporting structure.”

In November, India’s securities regulator granted Invesco Mutual Fund approval to launch the InvescoCoinShares Global Blockchain ETF Fund of Fund. The ETF had been due to launch on November 22 before Invesco deferred it in view of the crypto bill. The fund would have been India’s first scheme offering exposure to global companies participating in the blockchain ecosystem. Meanwhile, India’s first cryptocurrency unicorn, CoinDCX, is planning to launch an initial public offering (IPO) once it receives regulatory approval.

Chhabra, the crypto investor, said crypto’s rise was unstoppable.

“Better technologies will keep becoming better – whether the government likes it or not,” he said. “I see cryptos as water. You may block it, but it will find its own way.”