The Centre is all set to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 during the Winter Session beginning November 29. The Bill intends to create a framework for the creation of the official digital currency to be issued by the RBI.
It also seeks to ban all private cryptocurrencies in India and will “allow for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” according to the Lok Sabha bulletin.
The government is unlikely to recognize crypto as a currency, but may allow digital coins to be held as an asset like shares, gold or bonds, sources suggest. There are also talks of the Securities and Exchange Board of India (Sebi) being designated as the regulator.
So what happens if India bans crypto?
Estimates suggest there are 15 million to 20 million crypto investors in India, with total crypto holdings of around Rs 40,000 crore ($5.39 billion), according to various reports.
In the event of the Centre banning crypto, the investors would be left with two primary options -- sell their assets or keep their crypto assets through wallets from offshore exchanges.
For those who want to hold their digital coins despite a ban, moving their crypto assets to self-custody wallets -- digital devices that work like micro SD cards -- would be a smart option. These self-custody wallets -- like Ledger, Trezor, SafePal and BitLox -- store the investors’ private Bitcoin key or keys. If they are concerned about keeping their wallet in India in the event of a ban, these wallets can be sent overseas to their friends or family.
There is also this understanding that if the government decides to ban cryptocurrencies, investors would still be given three to six months to sell their assets.
Why is a complete crypto ban not feasible?
Digital coins don't just work like a currency but also an asset and a commodity. Even if banned, people can still share them with each other. Cryptocurrencies are simply pieces of computer code that can’t be banned. However, a regulatory ban would make it difficult for mainstream users to trade in crypto. Most investors in India trade on crypto exchanges as they don’t understand the technical aspects of creating crypto wallets and so on.
Another major reason why India is unlikely to completely ban crypto is the sheer number of investors in the country. According to media reports, almost seven million people in India hold $1 billion worth of cryptocurrencies. Among all digital coins, Bitcoin is the most popular in the country.
Bitcoin, the world's biggest cryptocurrency, which had been hovering around $60,000, declined to $55,460.96 on November 24, amid news of the crypto bill in India. In fact all major digital currencies saw a fall of around 15 percent, Ethereum fell by 15.58 percent, and Tether down by 18.29 percent.