Why India's crypto exchanges are optimistic despite reports of a ban

In recent weeks, there has been a flurry of reports from India suggesting that the country's government is preparing to ban cryptocurrencies.

It's hard to know how true they are, however, because the government of India has not yet formally commented on the matter. Almost all the news reports have quoted anonymous government sources.

Unsurprisingly this has led to chaos and confusion in the Indian crypto community.

"We are hoping for the best and preparing for the worst," Sharan Nair, the chief business officer at Indian crypto exchange CoinSwitch, told The Block. If a ban is enacted, "the only option we would have left is to move our base and serve a different country altogether," he said.

Still, Nair and other executives of major crypto exchanges in India tell The Block that there is a reason for optimism that the government will take a more nuanced view than the last time it considered a crypto ban — and in turn, allow their industry to survive.

Currency or asset class?

The situation might become clearer soon, thanks to a bill that is expected to be discussed by the Indian Parliament's lower house, the Lok Sabha, sometime before the ongoing parliamentary session that concludes on April 8.

The proposed bill, entitled "the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021," seeks to "prohibit all private cryptocurrencies in India" and create a framework for developing a central bank digital currency.

The bill's definition of private cryptocurrencies — along with whatever else it contains — remains unknown. But India's Finance Minister Nirmala Sitharaman, whose ministry drafted the 2019 bill, recently suggested in written remarks that private cryptocurrencies include digital currencies that are not issued by a central bank.

Specifically, the 2019 bill was drafted by an inter-ministerial committee of the Department of Economic Affairs at India's Finance Ministry. That bill recommended banning cryptocurrency payments, investments, and mining, among other activities. It also proposed a penalty for violating the prohibition, or up to ten years' imprisonment, or both. But it was never introduced in Parliament.

This time, crypto exchange executives are hoping that the government will discuss the new 2021 proposed bill and draw a distinction — one that could be vital to the crypto industry — between digital currencies and digital assets.

WazirX CEO Nischal Shetty said that he is confident that India will not ban crypto. He said recent reports have made clear that India is opposed to the use of crypto as a currency, not as an asset class. If the government allows crypto to be used as an asset, it's likely that crypto exchanges will be allowed to continue with business as usual.

Shetty was referring to recent comments made by Subhash Chandra Garg, former finance and economic affairs secretary of India, who headed the committee that drafted the 2019 bill.

The 2019 draft bill did not distinguish between crypto as a currency and as an asset, and recommended banning crypto in almost all forms, declaring that "no person shall mine, generate, hold, sell, deal in, issue, transfer, dispose of or use cryptocurrency." But now Garg seems in favor of distinguishing between the use of crypto as an asset versus its use as a currency. 

"Crypto assets as assets perhaps can be one area where the government can look at, but with lots of caveats," said Garg. "You have to protect this small sort of investors from this. Only the people who understand and have the ability to take that risk might be allowed." But using it as a currency should not be allowed, he argued.

It is unclear whether Garg's view on crypto matters now since he is not serving the government anymore. But comments from Sitharaman last week made industry leaders more confident that a blanket ban is not in the works. On March 5, she said that the government would be taking a "very calibrated position" on crypto.

Political challenges

Sitharaman's comments aside, however, the exchange executives agree that a general lack of knowledge about crypto among government officials appears to be a key hindrance.

It has also been a challenge to educate them, said Unocoin CEO Sathvik Vishwanath. "It is difficult to get an appointment of every member of Parliament. Also, more than 80% of them are not tech-savvy," he said.

Unocoin, CoinDCX, WazirX, and CoinSwitch have teamed up to launch "IndiaWantsBitcoin.org" — a campaign aimed at educating and appealing to government officials. Supporters can email a petition to their respective Parliament members, requesting them to urge the government to reconsider any plans to ban cryptocurrencies.

So far, the IndiaWantsBitcoin initiative has helped send over 164,000 emails, according to CoinDCX CEO Sumit Gupta. CoinDCX is also reaching out to ministers on its own to help them better understand crypto, he said.

Gupta added that if it is money laundering that the government is worried about, exchanges can help catch bad actors. CoinSwitch's Nair and WazirX's Shetty agreed.

Meanwhile, in a bid to educate the broader public, WazirX recently entered into a year-long partnership with CNBC TV18 to air a weekly educational show on crypto. The first episode went live on March 2 but has less than 500 views on YouTube.

It is not yet clear whether the new bill will be considered in the current parliamentary session. A recent Business Standard report, citing anonymous "government sources," suggested that the bill may be postponed to the Monsoon session of Parliament. The monsoon session is usually held from July to September every year.

Even if a ban were to eventually pass, it could face legal challenges, and then a court process would play out, said Jaideep Reddy, a partner at law firm Nishith Desai Associates.

Indeed, CoinDCX's Gupta and Unocoin's Vishwanath told The Block that if a ban were to take effect, they would fight with the government in India's Supreme Court. In fact, they've done that once before. In 2018 when the Reserve Bank of India passed a rule that restricted banks from dealing with crypto clients. The Supreme Court overturned the rule in 2020.

But Reddy said that in the meantime, if crypto businesses can make their voices heard, there's reason to think that some policymakers will reconsider whether a blanket ban is necessary.

"Almost every country has found a way to regulate crypto," he said.