It was early in March when India’s Supreme Court delivered a historic verdict on a landmark case that promised a new era for crypto in India. The Supreme Court moved to lift the Reserve Bank of India’s controversial ban on banks issuing services to crypto-related firms.
It seems, however, that not all banks are complying with the new ruling. According to Mohammed Danish, a fintech lawyer, there are reports of several cases where banks have continued to decline crypto-related transactions. “In most of the cases, the banks have not given any written communication but verbally informed their customers that they are waiting for RBI notification,” Danish said.
India’s crypto industry is not out of the woods yet
Following these developments, several crypto exchanges in India have collectively reached out to the country’s high court and penned a letter to the RBI, seeking regulatory clarity and inquiring as to whether their operations are subject to the national Goods and Services Tax. India’s crypto exchanges are seeking this information in order to avoid complications with the nation’s tax authority.
Amid the lack of regulatory clarity exempting digital assets from GST, experts predict a standoff between exchanges and the Indian tax authority. Additionally, if India’s crypto exchanges are required to comply with GST on every transaction, experts are adamant that most platforms dealing with crypto payments will not survive long. In a conversation with Cointelegraph, Sumit Gupta, the co-founder of crypto exchange CoinDCX, noted that the exchange is working hard to obtain a favorable verdict.
Although research indicates that the crypto industry worldwide is expected to grow overall, according to Preetam Rao, co-founder and CEO of blockchain development company QuillHash, some banks still believe the cryptocurrency market is largely unregulated and lacks a set standard for Know Your Customer measures, data protection and a regulatory framework for addressing crypto frauds. This is not to mention the resistance from the RBI that India’s crypto community has to deal with in its quest for a favorable regulatory framework. Rao also mentioned that the RBI has created a lot of negativity on the matter, so the verdict is still out on whether they will respond positively.
Rao also believes that despite the global crisis brought on by the COVID-19 pandemic, the Indian people have not lost faith in cryptocurrency. He said in a conversation with Cointelegraph: “The future of crypto is bright in India, even in this phase CoinDCX gained 10x active users in March alone.”
Regulatory uncertainty is not exclusive to India
The case of regulatory uncertainty in India pretty much reads from the same script as that of the United States and Europe. Regulatory uncertainty hangs like a dark cloud over the crypto industry in general. Just recently, the U.S. Crypto-currency Act of 2020 was introduced, a law that seeks to categorize and clarify federal oversight laws on digital assets.
The bill was presented on March 9 by Paul Gosar, a U.S. Congressman from Arizona. According to Will Stechschuite, Gosar’s legislative assistant, the bill will provide regulatory clarity in addition to giving “legitimacy to crypto assets in the United States.” However, the proposal attracted mixed feedback due to its categorizations, with some critics arguing that the bill was “Dead on Arrival.” One critical tweet from Jerry Brito, Coin Center’s executive director, reads: “It’s not a serious bill and has almost zero chance of moving but should be opposed on principle.”
In the European Union, the 5th Anti-Money Laundering and Combating the Financing of Terrorism rules that now apply to crypto custodians has pushed some companies to shut down, while others have relocated out of the EU. The regulations require crypto custodians, wallets and exchanges to implement Know Your Customer procedures and monitor transactions continually, arguably undermining crypto’s core principles of anonymity.
On Indian banks denying services to crypto-related firms despite the Supreme Court ruling, Sharat Chandra, who is one of India’s blockchain evangelists and an emerging tech advisor, shared his opinion with Cointelegraph: “Indian banks are waiting for an official word from the Reserve Bank of India as far as crypto related transactions are concerned.” Also providing some insight was Dileep Seinberg, CEO and founder of Exiom blockchain technology company, who told Cointelegraph:
“Adoption of new technologies and understanding its impact [on Fintech especially Banks] has always been a challenge at a global scale. Understanding the power of Blockchain technology on banking and how the New Money will work took a few years in the western world.”
Indians are ready for crypto
While the rest of the world continues to fight the economic effects of the coronavirus pandemic, the cryptocurrency market has experienced peak trading volumes in the past few weeks in select countries as evidence of a revival.
As governments across the world print more money to stimulate the global economy, industry watchers like Rao believe that more people will look to crypto as an alternative. Rao noted that in India, “people are talking about a global currency and looking for an alternative to INR and USD.” He further explained:
“Their main point of concern is inflation, unlimited supply of fiat currency due to printing of money, and central bank’s move to reduce interest rates.”
Rao also noted that there are currently 5 million active crypto users online and offline in India, not to mention crypto communities, dedicated publications and over 20 active exchanges and social media campaigns. In essence, while the regulatory uncertainty persists, Rao believes that awareness about cryptocurrency is spreading and therefore further boosting a crypto revival in the coming years.
Seinberg also told Cointelegraph that he remains optimistic and that despite the “conservative approach on regulation, […] India will become a major market for cryptocurrency as it’s been seen with the Payment Wallet industry.”
Seeking regulatory clarity
The crypto industry is going through a revival process in India, and even though regulatory uncertainty is rampant, there is a crypto community eager to adopt digital currencies, with some banks already starting to work with crypto-related firms. Multiple exchanges in India, such as WazirX, CoinDCX and PocketBits, are still accepting fiat deposits and withdrawals while working closely with banks.
As the country’s exchanges seek clarity, the future of crypto in India hangs by a thread. It is anyone’s guess whether the country’s regulators will go for progressive reforms or a regressive regulatory framework. However, Chandra believes that the GST council might include cryptocurrencies under its umbrella as a means to raise tax revenue:
“Due to the Covid-19 outbreak, economic activity has been minimal and tepid GST collection figures tell a telling tale. Economic recovery will take longer than usual. GST on cryptocurrency trade will help in shoring up revenues for the government.”
In the meantime, however, Chandra suggests that crypto companies should continue to take legal recourse to force banks to follow the ruling by the apex court.
Formulating a positive regulatory framework
According to Seinberg, cryptocurrency adoption will happen fast, and “India is just waiting for the right nudge.” Ultimately, the best outcome is one where regulators in India provide crypto firms a clear set of rules for a healthy business environment. For now, India’s crypto community remains resilient and optimistic. Gupta believes that “this confusion [with the banks] will be resolved in a matter of time.”
Also, while speaking to Cointelegraph, Sathvik Vishwanath, the CEO of India’s Unocoin exchange, noted that after the coronavirus pandemic, the stifled state of India’s crypto industry will resume the momentum it had picked up after overcoming the RBI ban. Chandra believes that in the short term, crypto payments will become more acceptable: “In the post-pandemic era, digital and crypto-related payments will rule the roost. As more and more banks are warming up to CBDCs [central bank digital currencies].” Chandra added:
“I strongly believe RBI would shed its inhibition and join the league of other central banks in furthering the cause of financial inclusion by leveraging digital currencies.”