Back in April 2018, the Reserve Bank of India decided to go ahead and issue a notice prohibiting all of India’s banking and financial institutions from offering their services to crypto exchanges, companies operating within the space, and individuals seeking to explore the nascent asset class.
Following the ban, India’s crypto ecosystem was brought to its knees, with a majority of operational exchanges either folding up completely or relocating to other nations with more hospitable regulations. Additionally, the notice resulted in digital currencies being maligned across India’s investment landscape, with many casual enthusiasts starting to view the overall sector with an air of suspicion.
This seemingly unjust decision was taken up in court by the Internet and Mobile Association of India, or IAMAI, a nonprofit organization that seeks to expand and enhance India’s online and mobile value-added services sectors. It is composed of a number of individuals currently operating within the Indian digital currency market, including executives affiliated with different crypto exchanges. The IAMAI’s contention is that the reserve bank’s ban not only falls outside its legal purview, but is also totally unconstitutional.
As part of last week’s court proceedings, Ashim Sood, counsel for the IAMAI, started off by reviewing the fundamental precepts underpinning cryptocurrency and blockchain technology, as well as reading out the guidelines issued by the Financial Action Task Force in relation to digital currencies last year.
Sood also explained to the judges the way in which many countries like Australia, Malta and Japan have been able to regulate their local crypto industries in a largely successful manner. In this regard, Sood laid out many of the stringent Know Your Customer practices being employed by various Indian exchanges, stating that the industry, by and large, had followed strict self-regulatory measures, but there was still a clear need for positive regulation to curb some of the issues plaguing the ever-evolving sector.
On Jan. 28, the legal counsel for the Reserve Bank of India put forth its key arguments defending its move to ban cryptocurrencies from the Indian economic landscape. As part of the proceedings, the RBI accepted the fact that it never implemented a ban on Bitcoin but rather “instructed” banks to simply refrain from dealing with cryptocurrency exchanges.
Cointelegraph reached out to Nischal Shetty, the CEO of WazirX, one of India’s largest cryptocurrency trading platforms and a recent acquisition of Binance — a move that showcases the crypto giant’s faith in the overall potential of the Indian crypto market. Shetty pointed out:
“Throughout the hearings, we’ve seen evidence of how the RBI hadn’t done any due diligence before releasing its circular banning crypto. Their move was arbitrary and led businesses to shut down or move outside of India. I’m optimistic that the Supreme Court will see the problems with RBI’s move and give a judgment in our favor. Huge props to our lawyer, Ashim Sood, for presenting solid arguments.”
The RBI’s core defense included arguments claiming that cryptocurrencies pose a huge threat to the nation’s monetary system and overall stability. Additionally, the RBI also stated that digital currencies were being used mainly by bad actors for money laundering, tax evasion, financing of terrorism-related activities, and so on. Lastly, the RBI’s legal counsel argued that crypto should be banned simply because a number of high-profile finance experts and economists such as Warren Buffet are against it.
To discuss this point further, Cointelegraph spoke with Sidharth Sogani, the CEO of Crebaco Global Inc., an India-based analytics firm focused on crypto and blockchain. In his view, there has been no research to date showing that crypto poses a threat to the Indian economy:
“The crypto economy is less than $250 billion to date, if we assume that all the Bitcoin on this planet is used for terrorism and money laundering, still it will be smaller than the money laundering, terrorist funding, and other illicit activities funded by fiat money.”
On the subject of Bitcoin’s untraceable nature and the claim that many people make use of venture capital funds to evade taxes, Sogani stated that the RBI was simply making assumptions. He asserted that BTC is, in fact, traceable given that the right regulatory infrastructure is in place. In his view, if regulated entities like banks start accepting Bitcoin, the government, as well as regulators like the RBI, would be better positioned to track its movements:
“Tax evasion is an allegation since they are assuming that all the transactions in India are taxed properly. 30% of all cash transactions in the country are not monitored by tax authorities, whereas local crypto exchanges are following all of the necessary compliances and are even filing their Goods and Services Tax! Thus, such comments are baseless.”
The RBI’s decision to ban crypto was about stopping illegal activities
Since the start of this legal battle, the RBI has reiterated that its ban was about protecting India’s investor community, as well as to push back against any illegal crypto-related activities. But per the legal rights afforded by the constitution of India to its citizens, neither the government nor any regulatory entity like RBI has the power to enforce such a ban. On the subject, Shetty added:
“As our counsel pointed out in court, according to the RBI’s annual report available on record, there is negligible risk from crypto in terms of its effect on the country’s economy.”
Sogani echoed a similar sentiment, stating that the RBI should first and foremost try to curb the illicit laundering of millions of rupees that routinely takes place both locally and across international borders.
For example, he pointed to the 2018 Punjab National Bank fraud wherein jeweler Nirav Modi was able to scam the bank to the tune of $1.4 billion. Sogani then alluded to the Indian bank scam that saw hackers make their way out with $1.77 billion.
He also pointed out that back in 2018, when Indian Prime Minister Narendra Modi implemented a nationwide ban on certain currency notes, the RBI issued a statement criticizing the move, which in hindsight, seems extremely hypocritical of the independent finance body. Sogani further told Cointelegraph:
“The RBI is not allowed to take decisions or ban any economic activity which affects an entire industry. This is above their power, legal jurisdiction since the Indian constitution allows every citizen to run a legal business.”
A crypto ban could adversely affect India’s economy and job market
As the global crypto community awaits the Indian Supreme Court’s decision, a study released by Crebaco Global Inc. claims that if the existing blanket ban is upheld by the court, India’s economy could end up losing $12.9 billion.
The data states that Indian crypto exchanges such as ZebPay, UNocoin and others recorded a total trading volume of around 40,000 crore rupees ($5.6 billion) last year. Additionally, trade-related activities from Indian IPs on Binance between January 2018 and December 2018 was at 7.9% — a number that clearly shows the booming interest among Indian people when it comes to cryptocurrencies.
The study then proceeds to highlight the number of jobs that have been created thanks to crypto and blockchain technology. For example, Crebaco’s data suggests that in 2019, a total of 6,150 individuals were employed as blockchain coders and content writers within India’s local fintech market.
Furthermore, a new research article recently released by the firm suggests that if the Indian crypto market were regulated, it could help provide employment opportunities to an additional 25,000–30,000 people within a short period of time.
With all of the arguments now presented to the Supreme Court, it is quite evident that the Reserve Bank of India’s core issue with crypto is that people will start to make use of currencies like Bitcoin, Bitcoin Cash and Ether exclusively for payment purposes, shifting the balance of monetary power within India.
However, it seems the RBI has so far failed to understand that payment isn’t the only use case for crypto and that the asset class is viewed by a whole host of Indians as being an alternative investment avenue to regular stocks and bond options. On the subject, Shetty opined:
“We should not pit Bitcoin against fiat because they both have different properties. One is deflationary, while the latter is inflationary. BTC has characteristics of property as well as of utility, currency, etc.”
According to a poll conducted by Crypto Kanoon — an Indian crypto news platform that has been covering the aforementioned proceedings in real-time since they began — it seems as though more than 68% of Indians believe that the judgement will come out in favor of the digital asset industry.
All in all, India’s relationship with crypto has been quite negative over the last couple of years. However, if healthy regulations within the subcontinent are established, they can help set a precedent for the rest of the world to follow.
As things stand, the judge’s panel presiding over the case seems to have understood the potential that crypto and blockchain possess and how these technologies can transform the digital and economic landscape of the nation in the coming few years. The final verdict is expected to be released sometime within the next few days.