Indian cryptocurrency exchanges look to discuss concerns with government

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Several big cryptocurrency exchanges of India are looking to jointly reach out to regulators and government departments on the need for positively regulating virtual currencies. The white paper jointly prepared by the seven exchanges states the need to regulate the use of cryptocurrencies in India, whether as an asset or a medium of exchange. The full presentation has been prepared around global regulatory practices, a proposed code of conduct and the potential consequences of a blanket ban.

There are currently over 10 million crypto users in India with an estimated value of Rs 1000 crore. With the extraordinary return given by cryptocurrencies, it has attracted the attention of many. For example, Bitcoin gave the return almost 10 times last year. With the growing popularity, however, one of the concerns is its illegal usage.

Relating to the issue of money laundering the note states that “All new technologies pose risks. Can these risks can be mitigated and managed to a reasonable extent such that the benefits of the technology outweigh the risk. Regulation can solve this concern. Across the world, regulators (including in the US, Singapore, Japan, Dubai and UK) have evolved regulation to solve for ML, tax evasion. Licensed intermediaries (crypto-exchanges) can help the regulator maintain oversight and control over cryptocurrency transactions.”

The report, which has been viewed by Money9, states that according to a report by the Society for Worldwide Interbank Financial Telecommunication (SWIFT), identified cases of laundering through cryptocurrencies remain relatively small compared to the volumes of cash laundered through traditional methods.

There are also concerns about environmental risks associated with Bitcoin mining. “Some cryptocurrencies such as bitcoins require a high amount of energy for ‘mining’ them. However, cryptocurrency mining activity in India is negligible. Electricity supply issues and unfavourable weather conditions make India an unfeasible market for cryptocurrency mining. India had also reportedly banned the import of a specific component of cryptocurrency mining equipment called ‘application-specification integrated circuits’ or ASIC. This is probably why cryptocurrency trading is far more popular in India than cryptocurrency mining. The mining industry has been migrating towards clean energy – Crypto mining uses 40% renewable energy compared to Internet data centres use 20% renewable & Global renewable energy share is 27%.”

India’s stance

The uncertainty about the future of cryptocurrencies, including Bitcoin, has grown manifold as the bill on cryptocurrencies is being finalised and will soon be sent to the Cabinet. RBI and SEBI do not have any legal framework to directly regulate cryptocurrencies. The existing laws are inadequate to deal with issues concerning them.

Finance Minister Nirmala Sitharaman recently said there won’t be a complete ban. She also said RBI will be taking a call on the regulation part. While FM’s statement is considered a positive sign by crypto exchanges, there are various media reports suggesting that RBI is seeking a complete ban on virtual currencies.

It is not the first time crypto investors are facing this situation. In 2018, RBI banned all banks from dealing with crypto exchanges which effectively led to the closure of exchanges. A three months notice was given last time to liquidate their investments. The RBI ban was later overturned by the Supreme Court in March 2020. If the government brings a complete ban on virtual cryptocurrencies, investors should be given a three-month window again to exit their investments.