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The $15M Economic Peril If India Bans Cryptocurrency

by Pragati Shrivastava
The $15M Economic Peril If India Bans Cryptocurrency

Capital markets across the world are increasingly adopting cryptocurrencies which has global leaders taking a hard look at how cryptocurrencies can either harm or help their economy. Countries like China have taken a firm stand in opposing crypto trading while India has been in talks about banning crypto with extreme punishment for crypto holders – but will this ban set them back in technology and potential economic security?

Granted, there are huge challenges for government regulators especially since cryptocurrency is no longer a novelty and blazing its way into the mainstream. These challenges stem from the ability to regulate and manage a new asset class, but there is no reason to recreate the wheel. Regulators in the United States have been thoughtful in their approach, using the existing legal frameworks of securities, currency, custody, and derivatives regulations. The SEC has noted that over time, tokens can move fluidly between a security and utility.

Despite the growing adoption of cryptocurrency, India’s inter-ministerial committee recommended a blanket ban on crypto trading through a bill they’ve drafted. It is noteworthy that with Facebook’s Libra unveiling, trust is a top issue among U.S. lawmakers and the RBI has issued statutory warnings cautioning investors to do their due diligence and ensure that they are prepared to bear the risks involved with assets that have no intrinsic value.
Regarding the report on cryptocurrency that recommended a sovereign digital currency, punishments and fines surrounding the use of private digital currency, India’s Finance Minister, Nirmala Sitharaman, spoke to the Economic Times, a leading business daily and said, “I had the presentation done before me. The committee has done extensive work on it. Inputs that have come in; if I compare several other countries where this kind of study has been done on cryptocurrencies, we have done very well.”

She added, “They have gone much ahead of all other countries that have thought about it. It’s a very futuristic and well thought out report. I have not spent time on it after the presentation. Of course, we will look into it soon and come back with a position. That was also reported in court as there is a case going on.”

The government is set to introduce the cryptocurrency draft bill in the winter session of the Parliament. Sidharth Sogani, the CEO of crypto and blockchain research firm Crebaco Global, Inc., believes that India will lose around $13 Billion worth of market if cryptocurrency is banned in the country. According to Sogani, Crebaco’s methodology includes an analysis of how much revenue companies might have generated if crypto was legalized, as well as crypto companies with Indian founders who moved offshore due to the Reserve Bank of India’s banking ban.

Indian crypto startups and companies have $4.9 Billion worth of business holdings; $2.1 Billion from expert blockchain coders, $1.27 Billion from content creators, and another $4.5 Billion from miscellaneous jobs, including lawyers, event managers, and laborers. This would drive innovation and crypto businesses out of the country. Despite this, a government panel in India has officially recommended that the country ban cryptocurrencies. The panel further recommended imposing sanctions on any crypto-related dealings, a critical stance on cryptocurrencies since the advent of their digital asset discussions.

Back in November 2017, the income tax department, as well as enforcement directorate, had sent notices to HNIs and crypto traders pertaining to their crypto assets. This was the first step in the process to ban cryptocurrency. This action was followed by a survey of top cryptocurrency exchanges in the country and a distributed circular by RBI asking all banks and related financial institutions to sever ties with cryptocurrency exchanges.

This ring-fencing approach has stifled cryptocurrency startups and exchange businesses, tied the hands of founders, developers, and entire projects in India, forcing them to shut down or move their operations out of the country. This lack of foresight could have India’s economy facing a huge slump. While central banks are speculating on consumer spending and interest rates on loans, the country is set to lose $13 Billion in market share because of their ban on cryptocurrencies.

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