It is unknown how cryptocurrencies are entering India to satisfy rising demand in the midst of a crypto mania spurred by an ad blitz. With no restrictions requiring disclosure of holdings, no one understands the complete stock of cryptocurrencies in all investors’ e-wallets or how many of those were purchased locally.
Senior central bank officials, three exchanges, a crypto broker, and the industry association Indiatech.org, which had published a white paper on cryptocurrencies, attended the meeting, which was summoned at the last minute by the RBI.
There is a growing sense in India that, rather than an absolute prohibition as in China, crypto trading in some kind and with certain limitations may be permitted. Only cryptos with a trail and traceable characteristics should be permitted. The KYC system and the possibility of unlawful transactions were also discussed.
Aside from money laundering issues, the RBI is concerned about potential economic uncertainty if crypto quantities increase over time. The quantity of crypto is increasing due to new coin releases, as opposed to the shrinking mining of Bitcoin, the most prominent crypto, whose supply is decreasing with each passing year.
It is believed that over two crore Indian investors own cryptos worth $4-5 billion. If the supply of cryptocurrency continues to rise, it may pose a monetary policy difficulty at some point. Many in the sector want cryptocurrencies to be bought only from exchanges based in India, and these exchanges, like banks, should be permitted FDI up to 74 percent.
In 2019, the Financial Action Task Force — an intergovernmental body that combats financial fraud — issued the ‘Travel Rule,’ which requires exchanges, banks, and wallet providers to submit information about crypto senders and receivers. The industry, which desires cryptos to be classified as a ‘current asset’ — because they can be easily converted into cash — rather than currency, anticipates the govt and RBI to clear things up on just a few other problems: whether the benefits must be taxed as capital gains or business income; whether using the RBI’s liberalized remittance scheme to purchase cryptocurrencies from abroad exchanges as well as other vendors violates the Foreign Exchange Management Act; and, who’d govern cryptos — would that be RBI?
On Monday, industry representatives will have the opportunity to submit their argument even before the Standing Committee on Finance. The original notion that cryptocurrency is a freely usable currency has shifted. Most people predicted that if cryptos were to survive in India, there would be rigorous dos and don’ts.