India's top court lifts ban on crypto trading: What the future looks like?
Being the world’s fifth-largest economy, India should not miss out on the benefits of cryptocurrencies and blockchain technology.Renu Mehta | Devdiscourse | Updated: 05-03-2020 18:23 IST | Created: 05-03-2020 18:22 IST
After almost two years of the ban, India's apex court on Wednesday ruled on to allow financial institutions to trade in virtual currency and cryptocurrency, a decision the Indian crypto community has been eagerly waiting for.
In April 2018, the Reserve Bank of India issued a circular prohibiting banks, lenders and other regulated financial institutions from dealing with virtual currencies (VCs), including Bitcoins, citing various risks associated with them. The ban went into effect three months after the circular was issued.
"In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the Reserve Bank shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/ sale of VCs," the RBI said in a circular issued on April 6, 2018.
Recognizing the power of RBI to take pre-emptive action, the Supreme Court in its latest judgment held that the proportionality of such measure was not there in this case, since there wasn't any damage suffered directly or indirectly, by RBI's regulated entities as a result of VC trading.
State of Indian crypto market
Before RBI ban
Before drilling deeper into the Indian crypto market, let's understand the basics of cryptocurrencies. Cryptocurrencies such as Bitcoin, Binance, Monero, Dogecoin, Ethereum are virtual currencies based on decentralized, distributed and public digital ledger technology (DLT) called Blockchain. They allow for peer-to-peer transactions at dramatically lower costs without involving traditional banking players. Cryptocurrencies utilize cryptography to validate and secure transactions and offer a higher speed of transactions, pseudo-anonymity.
The use of distributed ledger technology, enhanced security, faster remittance transfer, and growing awareness are some of the main reasons that have fuelled the global adoption of cryptocurrencies.
|750 Bitcoins per day||Average volume across 5 major exchanges in India|
|10,551 USD||Average calculated at the everyday closing price for 180 days|
|1st November 2017||Starting date|
|30th April 2018||Ending date|
|79,13,250||Per Day Volume Approx|
|1,42,43,85,000||180 Day Volume Approx|
Table: Just before the RBI imposed a blanket ban on crypto trading, this was the average volume of Bitcoin and cryptocurrency. (Data courtesy: CREBACO)
RBI's decision ruined the Indian crypto ecosystem, forcing crypto exchanges to wind down their business operations in the country. The absence of cryptocurrency regulations also hindered the development of the fast-growing industry of crypto assets in the country.
After SC Ruling
Now that the Supreme Court has struck off the crypto trading ban, the industry will draw global investments, businesses will boom and doors will open for the widespread adoption of VCs. It will also pave the way for innovation and crypto startups in the country.
According to the estimates by markets and markets, the overall cryptocurrency market is projected to reach USD 1.40 billion by 2024, at a CAGR of 6.18 percent during the forecast period, i.e. 2019-2024. Emerging economies such as India and Brazil are expected to offer significant growth opportunities for the companies operating in the cryptocurrency market.
Hopefully, over the coming years, India will make a valuable contribution to the global crypto ecosystem.
"In India, huge damage was done due to the lack of awareness and RBI's decision which is now reversed by the Supreme Court," says Kumar Gaurav, founder, and CEO at online crypto banking platform Cashaa.
The industry needs to work closely with the government and policymakers including the RBI to develop a comprehensive framework for regulating and monitoring virtual currencies, address the associated risks like money laundering, tax evasions, and foster sustainable development.
Along with the crypto industry, the latest judgment is also a win for the blockchain industry that is poised for rapid growth in the coming years. The blockchain technology that forms the fundamentals of Bitcoin and other crypto-assets holds immense potential for the traditional financial services sector and FinTech ecosystem in India.
In a report submitted in 2019, the Indian government's Inter-Ministerial Committee (IMC) on Virtual currencies has also highlighted the positive aspect of distributed-ledger technology and suggested various applications, especially in financial services, for its use in India. Possible DLT use cases include loan-issuance tracking, collateral management, fraud detection, and claims management in insurance and reconciliation systems in the securities market.
The latest ruling has opened doors for the Indian and global crypto ecosystem. However, a draft bill entitled "Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019" is yet to be discussed in the parliament. It seeks to prohibit the mining, generation, holding, selling, dealings, issuance, transfer, disposal or use of cryptocurrency in the territory of India.
For now, it won't be wrong to say that the fate of the Indian crypto ecosystem is still uncertain. But, as industry body NASSCOM (National Association of Software and Services Companies) says that banning tech is not the solution, instead, a risk-based framework to regulate and monitor cryptocurrencies and tokens has to be developed.
India has an immediate potential market size of 12.9 billion US dollars and the scope of creating about 25-30K jobs immediately once the crypto industry is regulated, according to a report by CREBACO, a credit rating and a complete audit firm for Blockchain and Crypto Industry. Being the world's fifth-largest economy, India should not miss out on the benefits of cryptocurrencies and blockchain technology.
(Disclaimer: The opinions expressed are the personal views of the author. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)
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