- Banks can now deal in cryptocurrency after the Supreme Court quashed the Reserve Bank of India’s (RBI) ban.
- However, a proposed bill is still pending with the government that could make it difficult for cryptocurrency players to survive in India.
- The regulatory uncertainty is probably the biggest concern for the government, Siddharth Mahajan, a partner at law firm Athena Legal, told Business Insider.
The Supreme Court
quashed the Reserve Bank of India’s (RBI) circular that banned banks from dealing in cryptocurrency. And, investors are looking forward to using the Indian currency to be introduced onto crypto exchanges. However, regulations could still make it difficult for cryptocurrency players to survive in India.
There’s a still proposed bill pending with the government that could prove tenuous — the Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019.
“It remains to be seen if the government will rethink the proposed bill in light of the Supreme Court judgement. This regulatory uncertainty in India is probably the biggest concern for the government,” Siddharth Mahajan, a partner at law firm Athena Legal, told Business Insider.
If new regulations are to come into place, they will have to differentiate between currencies, utility tokens and commodity-backed tokens — each of which serves a different purpose.
“RBI should not be concerned with commodity-backed or equity tokens. Utility tokens should be subject to light regulation to the extent of checking whether they are really utility tokens and to ensure that taxes are paid,” said Srinivas Katta, a partner at Induslaw.
Can cryptocurrency replace real money?
Right now, cryptocurrency doesn’t pose much of a threat. It’s a long way from becoming any kind of financial instrument capable of replacing real currency, according to Mahajan.
“It remains to be seen if the cryptocurrency business in India is positioned as a financial instrument or commodity with underlying value. The biggest fear of the RBI is the proliferation of unregulated financial instruments which are not backed by the state,” he explained.
Rather than impose regulations immediately, Katta believes that policymakers should allow virtual currencies to run for a while before making any decisions. If implemented properly, they could help create a more inclusive economy.
“Crypto-currency and tokens are an important development and can enable further formalisation of the economy if properly implemented. They can also promote new industries and bring in a lot of investment. They can also promote the ease of doing business, which is very important,” said Katta.
RBI’s ban bore heavy on startups like Koinex, Unocoin, Zebpay, and Cryptokart. According to Internet and Mobile Association of India (IAMAI), companies dealing in cryptocurrency had ₹1365 crore of user funds trusts, with monthly transaction volume around almost ₹5000 crore.
It is unlikely that the government or RBI will let a totally decentralised currency in India flourish in India. Though crypto-currency enthusiasts want it run as a parallel financial system rivalling central banks backed currencies but that is unlikely to happen, according to Mahajan.