In just the last few months, we have witnessed a lot of positive developments on the global front within the Bitcoin and cryptocurrency space. Payment companies like PayPal have openly embraced and enabled the purchase of bitcoin and other digital assets for their massive user bases (Mastercard promises to follow suit soon), Canada just approved a Bitcoin ETF, several American companies like Tesla, Microstrategy, Square have added Bitcoin holdings to their treasuries, and large funds of repute have publicly disclosed their bitcoin investments. In this background, India is considering a ban on crypto-assets not issued by the state, threatening to leave India out of this new financial internet. We do not believe that the two are mutually exclusive. A digital rupee is an excellent domestic policy that can be complemented with a foreign policy supported by global public blockchains like Bitcoin and Ethereum. While the actual contents of the bill are still unknown and the draft is yet to be presented in the parliament, there is a lot of speculation that the Government of India might take an adverse view of Bitcoin and digital assets.
As with any proposed bill of this magnitude, it is in the absolute interest of the government, the bureaucrats and for the citizens of our country, that such a bill only be finalised after careful considerations from the industry, key technologists, our counterparts on the global regulatory side and of course, the millions of Indian investors who have investments in digital assets. To ensure there is a dialogue with the government, India’s leading crypto companies, venture capital investors, and experts in the space have joined hands to build awareness amongst policymakers and the public about cryptocurrencies and their scope to unlock deep financial innovation at a global scale. Together we have launched the #IndiaWantsBitcoin campaign that will put the spotlight on the already sizeable crypto ecosystem in the country and the financial opportunities it has created for millions of Indian investors with the hope that the regulators will look after their concerns while drafting the framework of the ‘Cryptocurrency and Regulation of Official Digital Currency Bill’.
We strongly believe that a failure to regulate cryptocurrencies will be a futile effort, that will lead to huge economic losses for India and create a crypto blackmarket. Bans in countries like Russia and Nigeria have proven ineffective as an effective ban can only be achieved by shutting down the internet. There is a thriving cryptocurrency ecosystem in India and dismantling this ecosystem will result in losses worth billions. Further it will also put India in a peculiar position as an outlier while the other leading economies like the US, China, Japan, Germany, South Korea, and Australia would have already accepted cryptocurrencies and would have built strong regulatory frameworks and innovation hubs around them. Banning cryptocurrencies will dent India’s reputation as a technology hub and its standing in the Ease of Doing Business Index. It could make India a laggard when it comes to adopting applications based on distributed ledger technology while China and Silicon Valley are making blockchains the center of their next big technology push. In terms of trading activity and holdings India is the second biggest Bitcoin nation in Asia, after China, and the sixth biggest in the world, after the United States, Nigeria, China, Canada, and the United Kingdom. As per the recent data from Venture Intelligence, investments worth $24 million have gone into crypto firms in 2020 after the Supreme Court’s decision to strike down RBI’s curbs on cryptocurrency trade in India.
We need to understand the geopolitics of this situation as well. While the crypto ecosystem in India is still at a nascent stage, banning the digital currency will further strengthen China’s position in the Asian money market. As per a recent article published by Forbes, while China claims to have banned Bitcoin, of all the G10 currencies China’s RMB has the strongest statistical correlation to BTC over the last 12 months, at around 84%. That means that as the RMB gets stronger against the dollar, so does Bitcoin, 84% of the time. This means that despite the ban, Chinese Bitcoin holders continue to have large investments as a hedge against the government. If India were to ban Bitcoin, this would further strengthen the RMBs position globally, as unlike China, India does not have vast Bitcoin reserves. Furthermore, India’s lack of Bitcoin holdings could create a truly adverse scenario for India if Bitcoin were to emerge as a global currency reserve.
Through the COVID-19 situation, when the majority of Indian professionals were facing the wrath of job losses and pay cuts, the average daily crypto assets trading volumes across the top Indian exchanges grew by nearly 500% since March 2020, when the Supreme Court struck down the Reserve Bank of India’s (RBI) April 2018 circular. At CoinDCX, we grew our team strength 2x and hired some of the best developers and professionals our country has to offer. We raised a follow-on to our Series A fundraise and immediately thereafter also raised a Series B for $14 million. All this in a scenario where there is no regulation. Imagine the kind of growth we will see In a scenario where India is able to regulate cryptocurrencies. All major crypto exchanges in India are already complying with KYC, AML laws, if the government provides clarity on taxation around crypto, this industry can contribute hugely to the economy. Further, in terms of Blockchain innovation, there are at least a handful of Indian crypto assets projects like Matic (now Polygon) which are globally renowned and are much better than their global counterparts. These projects have already put India on the map when it comes to crypto innovation. In the event of a ban, any further opportunity to create such an impact will be hugely reduced.
All developed nations with the exception of China have granted legal status to cryptocurrencies and the majority of them are working on creating regulatory frameworks around the purchasing, storing and usage of cryptocurrencies. In a recent study by Chainalysis, out of the 154 countries surveyed, only 12 countries showcased very little crypto assets activity indicating that cryptocurrencies are truly a global phenomena. Countries like Australia, Canada, Japan, Switzerland and Denmark have well developed regulatory frameworks including AML/CFT and tax-related considerations for cryptocurrencies and many other developed nations like the US, the UK is in the process of building their frameworks – none of these countries has banned or prohibited Bitcoin or cryptocurrencies – private or public.
The article is written by Sumit Gupta, CEO CoinDCX.
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