Nothing seems fine with crypto-currency (virtual currency) investors. This time yet another bad news, which can prove final nail in the coffin for the investors, is that a high-level government panel has recommended ban on all cryptocurrencies in India. The committee, which submitted its recommendations to the government a week ago, has even proposed a draft bill, Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019. The only favourable thing for investors is that the committee has favoured launching of an official digital currency.
In my earlier columns, I had time and again warned about the high risk involved in investment in cryptocurrencies. It was a huge surprise when I learned that we have thousands of such investors who stand invested in different cryptocurrencies, especially Bitcoin. Crypto market may be a charming investment platform for investors in rest of the world, but in India, cryptocurrency is a disputed asset. The government ofIndia (GoI) has not recognized this virtual currency in its financial system.
In April last year, the Reserve Bank of India (RBI) while falling in line with the government directive barred banks and financial institutions from dealing with cryptocurrencies. This gave a big jolt to the crypto market here in India and subsequently to the local (J&K) investors. The move drove many crypto exchanges out of business in India.Remarkably, while presenting Union Budget 2018, the then union finance minister, Arun Jaitely, made a blunt official declaration that cryptocurrency not a legal tender in the country.
Cryptocurrency transactions are completely online and tracking down the place where they would be happening is an uphill task for government agencies. But, by virtue of this ban proposal, if approved by the government, the investors caught in possession of any sort of virtual currency will have to face consequences. Any major activity involving sale and purchase of cryptocurrencies may be a cognizable and non-bailable offence. The ban comes along with a fine of Rs.25 crore or three times the loss caused or gains made by anyone who mines, generates, holds, sells, transfers or issues cryptocurrencies in India. Even the proposal envisages a punishment of imprisonment up to 10 years for direct or indirect transactions conducted by investors using cryptocurrencies.
What should have prompted the committee to propose ban on cryptocurrencies in India? Globally, crypto market is seen by the experts as convenient route to launder ‘dirty money’. It’s considered as one of the channels for terror funding. Lacking a legal backing, the use of cryptocurrency in the India is a violation of foreign-exchange rules. In this backdrop, the income tax department in the recent past sent notices to thousands of people dealing in cryptocurrency after a nationwide survey showed more than $3.5 billion worth of transactions have been conducted over a 17-month period.
Precisely, the main problem with cryptocurrencies is the misuse of the underlying technology – the blockchain technology. In cryptocurrency, the investors use blockchain technology to create a set of virtual currency like shares in a trading entity that have an initial set value and fixed number. This currency becomes the medium of exchange through which people trade goods and services. It has unique security features that do not allow tampering and makes it more trustworthy.
Now the question is what cryptocurrency investors should do? At the moment, there is no ban in holding, selling and trading of these virtual currencies. After banks were directed by the RBI not to allow cryptocurrency transactions through the banking system, most of the exchanges, including India’s biggest exchange Zebpay, have moved out of India where it is easier to do such business. Even the move has also encouraged investors to drive transactions underground.
However, once the ban proposal sees light of the day, any such transaction will become criminal.
Should investors off load investment in cryptocurrencies? In investment matters, experts always suggest not to do anything as a reaction to any adverse market scenario. It’s just a proposal to ban cryptocurrencies in future. I am sure there would be an option for the existing investors to exit from the crypto market once the ban is approved. If no such proposal is in the recommendations, it’s the responsibility of the government to invoke a provision for an exit plan to ‘declare’ and ‘dispose’ the cryptocurrencies which are currently being held by the crypto investors.
(The views are of the author & not that of the institution he works for)