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India Reconsiders Crypto Ban, Following Criticism

India may issue a blanket ban on all cryptos, statements from top officials indicate. However, the government is drafting a new bill that would allow for the private use of cryptos.

Just last week, the country introduced a Cryptocurrency and Regulation of Official Digital Currency Bill 2021. The bill spooked investors, as it was identical to the draft of the 2019 bill to ban crypto.

The bill wrote that it intended to “create a facilitative framework” for India’s official digital currency. To do that, it “seeks to prohibit all private cryptocurrencies in India”, it wrote. However, it would allow “certain exceptions to promote the underlying technology of cryptocurrency and its uses.”

Such wording had crypto investors in a panic. Many speculated that India was following in China’s footsteps. In September, China banned all crypto transactions, following a crackdown on mining and exchanges. Partially, China’s crypto ban was due to its plans to introduce the Digital Yuan. India unveiled a plan for its official digital currency that would work similarly. India’s central bank reaffirmed its commitment to that goal in July.

The speculation led to panic selling in India. At one point, Bitcoin crashed some 15% on Indian exchanges. As a result, significant cryptos traded at a considerable discount compared to the rest of the world.

A potential ban impacted crypto prices globally as well. For example, a ban in India could limit potential future growth for Bitcoin and other cryptos. This, in turn, would harm the price. Bitcoin was under pressure last Wednesday, but it soon rebounded.

A ‘New Bill’ Coming Out

However, the worst fears investors had did not materialize. As a result, the government of India is reconsidering its harsh stance on crypto. Finance Minister Nirmala Sitharaman told the Parliament that the government had decided to modify the bill on crypto regulations.

The government had indeed proposed a bill last session, she said. “But subsequently, because there were other dimensions which, in the real-time, we thought it was important to bring into the bill, that it will have reworked,” she said.

“In a way, the bill which is coming now is a new bill,” she said, indicating that the government will rework its proposal.

“This Bill, once the Cabinet clears, will come into the house,” the Finance Minister added.

When asked why the government released the previous bill, Sitharaman said that the government intended to have a statement that the Parliament could consider.

“The earlier attempt was definitely to come up with a Bill that the house can consider,” she said. “But, later, because rapidly a lot of things had to come into play, we had started working on a new Bill. This is the Bill that is now being proposed.”

She also added that the government has not yet decided whether it will ban crypto ads. However, it would take steps to educate investors so that they know what they are doing.

“This is a risky area and not in a complete regulatory framework. Therefore, no decision was taken on banning its advertisements,” said the finance minister.

Discussions on regulating NFTs are also taking place, according to the minister.

Criticism

The change of tune comes after the official that authored the original bill rebuked the notion of banning crypto. In an interview with News18, the former finance minister Subhash Garg called the old statement “a mistake.”

“I think this was perhaps a mistake. When you are not even ready with the bill, it is misleading to say that it will ban private cryptocurrencies and to intimate the government about the same,” he said.

“Ideally, the government should discuss with stakeholders and crypto investors and then formulate a bill”, he added.

Former Finance Secretary Garg was the person who drafted the original bill in 2019. However, he has since reconsidered his position on crypto assets. In July 2020, he said that the government should permit crypto assets and regulate them as commodities.

On Monday, he called the digital currency a “useful tool for humanity”. He also added that blockchain and crypto have huge potential. However, he said that this is something that the government needs to consider carefully before deciding.

“This is a new emerging technology; no one fully understands it, whether in the government or the private sector. Something like cryptocurrency and blockchain technology, which has enormous future potential, needs to be discussed widely,” he said.

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India is a prominent crypto player. There are an estimated 20 million crypto investors in India and some $5.39 billion worth of crypto assets.

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