From Ban To Regulation: The Journey Of Crypto Currency In India So Far


Cryptocurrency is a decentralized structure and doesn’t come under the government or a fixed group of people dealing with finances in the country as a whole. And hence it can be seen that cryptocurrency has witnessed tremendous ups and downs in the past few years, owing to its increased demand. The government of India, however, to protect the public has time and again shown its concern about the decentralized currency that has taken the crypto industry by storm. Recently, the government of India announced that it is soon going to ban all private cryptocurrencies and is about to introduce a regulatory framework. While it created panic among investors and crypto giants, the government did not give official confirmation on the regulation. The upcoming Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 will look to make a clear distinction when it comes to its often used categorization as a currency. In the winter session of the Parliament, a bill is likely to be passed that ensures this cryptocurrency business inst affected to a major extent yet undue advantage isn’t taken by the giants running the show.

Earlier, the Reserve Bank Of India also banned financial banks from supporting crypto transactions. However, the apex court lifted the ban in March 2020 allowing crypto firms to freely operate in the market without any restrictions which indeed came as a relief to the ones who had invested their whole and soul in the industry.

India's digital currency market was worth $6.6 billion in May 2021, compared with $923 million in April 2020, according to blockchain data platform Chainalysis.

According to the news reporters, India looks set to regulate crypto trading, rather than slap an outright ban on the digital currencies as feared by the public. The government suggested any violation of the rules could be punished with prison terms of up to 18 months, or by fines imposed by the SEBI. The penalties could reach as high as 20 crore rupees, equivalent to about $2.6 million dollars.

Mentioned below are some ways in which the crypto industry has been perceived in India so far.  

2013-2017

In 2013, the Reserve Bank of India (RBI) expressed its concerns over the use of virtual currency and issued a circular warning to the public against the use of virtual currencies. The central bank also pointed out that it is regularly keeping an eye on developments in the virtual currency world, including Bitcoins, Litecoins, and other altcoins.

Even after repeated warnings, banks continued to allow transactions on cryptocurrency exchanges. On February 1, 2017, RBI released another circular, expressing its concerns over virtual coins. As a result, a warning was issued by RBI and the finance ministry by the end of February, clarifying that virtual currencies are not legal tender.

Two Public Interest Litigations (PILs) were also filed in the Supreme Court. While one asked to impose a ban on buying and selling of cryptocurrencies in India, the other demanded a regulatory framework to regulate the industry. In November, the government formed a committee to study issues that revolve around digital currencies and propose actions.

2018-2020

In March 2018, the Central Board of Digital Tax (CBDT) submitted a report to the finance ministry asking to ban all digital currencies. A month later, the RBI issued circular banning banks and financial institutions from providing financial services to virtual currency exchanges.

On April 6, 2018, RBI again issued a circular restraining commercial and co-operative banks, payments banks, small finance banks, NBFCs, and payment system providers from dealing in digital currencies.

Cryptocurrency prices fell after the RBI issued a notice and order was passed. Meanwhile, in March 2020, the crypto industry once again felt relief after The Supreme Court of India lifted the ban on cryptocurrency imposed by RBI.

2021(January to October)

“A high-level Inter-Ministerial Committee (IMC) constituted under the Chairmanship of Secretary (Economic Affairs) to study the issues related to virtual currencies and propose specific actions to be taken in the matter recommended in its report that all private cryptocurrencies, except any virtual currencies issued by the state, will be prohibited in India,” Finance Minister Sitharaman said in Rajya Sabha on February 9.

Minister of State for Finance Anurag Thakur also informed Parliament that the government is planning to bring a bill to regulate cryptocurrencies.

Further, in November 2021, the Standing Committee on Finance, chaired by BJP member Jayant Sinha, met representatives of crypto exchanges, Blockchain and Crypto Assets Council (BACC), among others, and came to the conclusion that cryptocurrencies should not be banned, but regulated. The government announced that it will soon introduce a regulatory framework and will ban all private cryptocurrencies from operating in the crypto market.

RBI Governor Shaktikanta Das reiterated his opposition to cryptocurrencies, saying these pose a serious threat to any financial system since they are unregulated by central banks. The RBI announced its intent to come out with an official digital currency in the face of the proliferation of cryptocurrencies like Bitcoin, about which the central bank has had many concerns.

Parliamentary Session

Amid all these developments, there are reports that the government may bring a cryptocurrency Bill in the Winter Session of Parliament. The proposed bill would focus on investor protection as cryptocurrencies come under a complex asset class category.

There is further hope for the citizens of this country as Prime Minister Narendra Modi while addressing the Sydney Dialogue, identified cryptocurrencies as one of the key areas where democracies should work together. This should indeed bring relief to the minds of all, investors and giants alike.