VIRTUAL WAR
War of attrition under way as cryptocurrency promoters try to stay one step ahead of evolving government regulations in India.
The battle lines have been drawn. On one side are the massed forces of the Indian government, represented by the Reserve Bank of India (RBI), tax authorities and other state agencies, along with public and private-sector banks. On the other side are the proponents of an ever-expanding number of decentralised, stateless virtual currencies.
The first shots were fired i n December when Finance Minister Arun Jaitley and then the RBI issued warnings to Indians trading in cryptocurrencies.
The warnings came at a time when bitcoin, the unquestioned leader in the field, had breached the US$12,000 mark and was heading even higher — it peaked around $19,840 — before starting a downward slide that took it back to around $6,000. Lately it has been trading around $9,000.
Mr Jaitley said on Dec 1 that Indian authorities had not given “any legitimacy to cryptocurrency”. A few days later, the central bank reiterated two statements that it had issued: the first back in December 2013 when bitcoin was still viewed mainly as a geeks-only novelty, and the second in February 2017 as interest began to grow among the general public. On both occasions it had cautioned users, holders and traders of virtual currencies, stressing that it had given no licence or authorisation to any company or entity to offer such currencies.
The finance minister repeated in his budget speech on Feb 1 that bitcoin was not legal tender in India and that the government would take all “measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system”.
Since then a large number of Indian banks have prohibited their customers from using debit or credit cards to pay for virtual currencies. A few have suspended the accounts of virtual currency (VC) exchanges and have yet to reopen them.
Due to banking restrictions, at least two VC exchanges — BTCXIndia and EthexIndia — have halted trading and asked their customers to withdraw their deposits, which they can take in Indian rupees or in the virtual currencies bitcoin, Ripple or Ethereum.
In any case, in the last few months, it has become extremely difficult for cryptocurrency customers to process their payments through the exchanges.
“It has become tough for customers to trade. Earlier it would take 15 to 20 minutes to process payments while now it takes up to two hours. The experience has deteriorated,” said Nischint Sanghavi, the head of Zebpay, a leading cryptocurrency exchange in the country.
In an interview with Asia Focus, Mr Sanghavi said the banks had not yet decided whether to reopen the exchanges’ accounts. However, this had not had any adverse impact on the cryptocurrencies themselves, he pointed out.
“In December last year people were buying impulsively (because bitcoin had breached $13,000). Now they are taking time, are cautious and are making informed decisions. The trade is witnessing a slow and steady increase,” he said.
Mr Sanghavi said he had nothing against the government introducing regulations for the trade. He admitted that there were “bad elements” present in the form of dubious ICOs (initial coin offerings) and individual traders.
Calling the current phase an “era of consolidation”, Mr Sanghavi expressed hope that the churn would lead to the weeding out of poor quality coins as well as illegal practices.
Zebpay has had 3 million downloads so far, does not allow crypto-to-crypto trade, and is among the top 60 cryptocurrency exchanges of the world.
BTCXIndia chief executive officer Mupparaju Siva Kameswara Rao blames the suspension of operations of his exchange on “regulatory uncertainty” prevailing in the country.
“Banking issues have been there since 2015. The banks have been discouraging the cryptocurrency trade,” he said. “I have closed due to regulatory uncertainty. I decided to close after the finance minister said in his speech that bitcoin was not legal tender.”
BTCXIndia was dealing in bitcoin and Ripple. When asked how he envisioned the future, Mr Rao said much would depend on what the government did after getting report from a panel headed by Subhash Chandra Garg, secretary of the Department of Revenue and Economic Affairs. It is expected to recommend to the government by March 31 whether cryptocurrencies should be banned. Mr Garg is against the use of the terms “coins” or “currency” and would prefer the word “assets” be used to refer to virtual currencies.
An earlier panel headed by Mr Garg’s predecessor, Shaktikanta Das, had suggested an outright ban on cryptocurrencies.
But the National Institution for Transforming India Commission, a non-statutory body chaired by the prime minister that advises the government on policy, is not in favour of banning the blockchain technology that underlies cryptocurrency transactions. Like policy bodies in most countries, it believes the technology has huge potential for many kinds of applications, not just cryptocurrency. It is also preparing to submit a policy paper on the technology next month to the government.
In a conversation with Asia Focus, Mr Rao endorsed the commission’s view. “Blockchain technology is an emerging space and is definitely good,” he said. The view is also shared by Mr Jaitley himself.
Last month, the cabinet committee on economic affairs, chaired by Prime Minister Narendra Modi, gave approval to the Unregulated Deposit Schemes Bill. Due to be introduced in Parliament, the bill provides for a complete prohibition of unregulated deposit-taking activity. It remains to be seen how the bill would treat cryptocurrencies such as bitcoin, Litecoin and Ethereum and over a thousand others.
Regulatory uncertainty and banking restrictions may have dissuaded some new cryptocurrency traders but local old hands in the crypto trade are not yet prepared to give up. Not only have they remained invested in bitcoin, but are also flirting with the likes of JIYO, BANQ, DiscountCoin and other new currencies introduced on MasterNodes recently.
“I have earned 250,000 rupees ($3,850) in the last week by buying coins from MasterNodes in exchange for my bitcoins. One can only profit if one buys new coins,” Rajat Gupta (name changed to protect his identity), an enthusiast in South Delhi, told Asia Focus.
Mr Gupta, who held 14 bitcoins in last April, has exchanged half of them for the new coins. He hopes his remaining bitcoins will bring him a windfall in 2030 when the price of a bitcoin, he believes, would rise to 10 million rupees ($153,700).
Mr Gupta says, however, that he is tired of staying awake at night to monitor the market and stay abreast of new developments, and may hire someone for the job. “I will employ a man to stay awake for me. It won’t be costly. After all, what will give you that kind of profit?” he asks with a chuckle.
Meanwhile, there is still uncertainty on how gains from cryptocurrency trade can be taxed. Some experts believe they should be categorised as short-term and long-term capital gains while others term such profits “income from other sources”.
Earlier this month, income tax investigators carried out raids on a bitcoin company called Crypto Secure Solutions Private Ltd in Faridabad, a city adjoining South Delhi. The investigation is continuing.
“In December people were buying impulsively (because bitcoin had breached $13,000). Now they are taking time, are cautious and making informed decisions. The trade is witnessing a slow and steady increase” NISCHINT SANGHAVI Zebpay