India’s central government is reviewing key parts of legislation that could ban cryptocurrencies in the country.
Along with regulators and other stakeholders, the government is addressing three key issues. First, whether or not to impose a total prohibition on cryptocurrencies in India. If they decide against this, the next consideration will be how authorities should regulate them. Finally, they will also consider which kinds of activities should be permitted, and which should be discouraged.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was introduced during the Indian Parliament’s Budget Session in the spring. However, for undisclosed reasons, no action was taken. As the government is painstakingly combing through the bill clause-by-clause, the situation is unlikely to be resolved during the upcoming Monsoon Session of the Parliament. The government had earlier considered convening a fresh panel of experts to discuss crypto regulations following a similar panel in 2017.
RBI’s banning attempts
In 2018, the Reserve Bank of India (RBI) barred regulated entities from dealing with cryptocurrency-related businesses and customers. After petitioning from cryptocurrency exchanges in India, the Supreme Court struck down this measure in March 2020.
Although not an official ruling, the RBI recently issued an informal request with the same intent as its action in 2018, that lenders sever ties with crypto businesses. This reportedly affected the operation of some crypto exchanges, such as WazirX. However, the RBI recently clarified its statement, allowing businesses to do business with crypto companies.
Crypto exchanges in India
In the midst of all this regulatory uncertainty, global crypto exchanges are still considering how to enter the Indian market. Reportedly, Kraken, Bitfinex, and KuCoin have all initiated talks to understand the Indian market and entry points better. While one exchange has already started due diligence for an Indian firm that it’s considering acquiring, the other two are still weighing their options. They are considering whether to set up their own subsidiaries within the country or to buy a local firm.
Binance set a precedent for the latter option by buying WazirX in 2019. However, the oldest crypto exchange in India has been facing some difficulties recently. Aside from issues with lenders mentioned above, the exchange recently struggled to deal with spiking volume from demand for Dogecoin. On top of that, India’s financial watchdog the Enforcement Directorate is now investigating WazirX for allegedly facilitating money laundering.