Until now, the Reserve Bank of India (RBI) has only warned citizens about the risk of investing in Cryptocurrencies and it just yet needs to ratify the Indian cryptocurrencies regulations.
The Registrar of Companies (RoC) stopped approving the Cryptocurrency exchange registrations. It is almost impossible to register a company whose names include terms like bit, coin, crypto, etc.
Furthermore, the Indian banks have stopped their services on Cryptocurrency exchanges, making the liquidation even harder. India exchanges have large spreads on the trades and uncompetitive pricing in comparison to leading global exchanges like Bitfinex, Poloniex and Binance.
Very few merchants accept Bitcoin in the country, so few that you can count them on the fingers of one hand. And still citizens foresee Bitcoin and other Cryptocurrencies as an investment which can give good returns, if not massive.
Even though the Indian market share of Cryptocurrencies constitutes a small amount, the bank latest actions seem to affect the market leading to decreasing of the global Cryptocurrency market share. John McAfee who publicly bet big on Bitcoin claimed in a tweet that the current market dip is temporary, and in the end, the decentralized exchanges would come into the picture and solve the problem.
The Income Tax Department expects citizens to file capital gain taxes on Cryptocurrency profits. In connection to that, the department has been collecting information from various exchanges across the world and evaluated that total trades worth – more than 3.5 Billion USD.
Last year, a report by an Indan government committee suggests immediate actions on restricting the use of Cryptocurrencies.
The neighboring country Bangladesh banned Bitcoin and other Cryptocurrencies and issued a warning against the transactions.
In addition, Indonesia is also imposing a ban on Cryptocurrency transactions.This negaitively affected the popular tourist destination Bali, where the alternative currency had already established a wide use. According to the law, only Indonesian Rupiah can be used as legal tender, and using any other currency is illegal.
What about the existing Exchanges?
The exchanges have to wait and see. They don’t have any other choice than cooperating with the government. As of now, the exchange authorities are yet to understand in which slab of the Goods and Services Tax (GST) the Cryptocurrencies will fall.
The situation is getting worse for the exchanges – the most recent bank policy is demanding one-to-one collateral for the loans approved earlier.
Opinion: Will there be an all-out ban?
If there is a total Ban, no doubt it would impact the economic growth. Or else, if the regulation is well structured, it can attract more foreign direct investment (FDI) which is always a priority for the government.
The problem is, how to track transactions that do not involve exchanges?
Hawala mechanism, where money transactions occur to avoid taxes and bypass law enforcement is a significant issue. Previously, cash has been the only player in the mechanism to trust and the government found a way to crack down these major Hawala cash hubs.
The Cryptocurrencies add fuel to the fire – the government could lose billions in taxes. The privacy and anonymity guaranteed by Cryptocurrencies, like Monero, pose a severe threat of easy money laundering.
An excellent regulatory framework would be allowing transactions and storage of funds only inside an exchange. It could be a good idea to impose a higher tax on transactions from external sources to exchanges , or entirely ban out-of-exchange transactions. Another useful limitation could be pronouncing all other kinds of operations illegal – like direct transactions between two wallets.
All those could still leave room for maneuvers. But at some point liquidating into fiat would be necessary, and taxation on conversions to fiat would decrease the severity of the tax evasion.
The government might ban Cryptocurrencies due to the inability to track them entirely or because of the risks they pose to the people. For example, even the so-called stable currencies could not guarantee good performance. One such case is BitConnect, a Cryptocurrency that was doing well around 300 USD has plummeted to 10 USD making many investors broke. But neither the traditional markets are very stable.
Cryptocurrencies are not the only way to store black money. Countries like Panama and Cayman Islands are always a safe haven for money laundering. Often the money laundering happens through a set up of offshore mesh companies and making it almost impossible to trace-back the money.
It’s a fact that Cryptocurrencies created lots of millionaires. While struggling through poverty, India could gain from making use of the newly formed coins and profit from its positive sides. In conclusion, maybe it is not the best bet for the Indian government to wage an all-out war on Cryptocurrencies.