The Narendra Modi government seems to be caught in a dilemma over the crypto bill that is scheduled to be introduced during the ongoing winter session of parliament. It has maintained a rigid posture throughout the current year by letting out that a ban on cryptocurrencies is actively under consideration.
As the final moments of the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, being introduced in parliament for discussion draws to a close, the government seems to be developing cold feet on its likely stance. The finance ministry has sent a note of the bill and put it before the cabinet to consider and give its nod. However, the cabinet has not been able to clear the draft bill with the same ease as 25 other bills scheduled to be taken up during the current winter session of parliament.
Cryptocurrencies have been making news globally over the past few years. But the massive gains even alternative coins (coins other than bitcoin are called alternative coins or altcoins) brought to the investors have made to top headlines and prime time TV. For quite some time now, cryptocurrencies have been seen as a better bet than gold as far as a hedge against inflation is concerned. The US is witnessing the highest inflation rate in 30 years at 6.8% in October 2021, while India’s is 4.48%.
In what is seen as the definitive evidence of gold being replaced as a hedge against inflation by cryptocurrencies, the first bitcoin future ETF (BITO) in the US listed on the New York Stock Exchange on October 19 broke all previous records of the most successful ETFs. It amassed $1.1 billion in Assets Under Management (AUM) within two days. In doing so, it knocked off the SDRF Gold Shares ETF that held the record of collecting $1 billion in AUM in three days in 2004.
Indian investors are aware of all these developments, and the government can’t look away, denying the people an opportunity to make profits from new technology and asset class.
RBI Governor Shaktikanta Das has been flagging the concerns felt by the financial sector regulators over the dangers of allowing cryptocurrencies to take root in the financial system and become popular. His concerns echo with the central banks all over the world. The government can’t overlook these fears. RBI had banned cryptocurrencies by asking banks not to provide banking facilities to crypto transactions in 2018. The Supreme Court subsequently overruled it in 2020. But despite the Supreme Court ruling that the crypto exchanges and crypto trading are legal in the absence of any law that makes them illegal, Indian banks are still not providing regular banking services to the crypto sector.
So, the complexity of the upcoming Indian crypto bill is not limited to what the government thinks and wants to do on this issue. It is a question of the government’s ability to balance the aspirations of different sectors and stakeholders. Here is how they are pitted against each other:
The regulators don’t want to give any leeway to cryptocurrencies and insist that the digital coins should operate as per strict regulations in complete transparency – something that goes against the basic principles of cryptocurrencies.
The people want the freedom to trade in crypto and make the most of the opportunity. They also wish a fully regulated environment where their investments are safe and secure. But even the US, which is the most crypto-friendly nation, has not allowed cryptos to be traded on stock exchanges and has consistently denied bitcoin spot ETF, citing the high volatility of crypto assets.
The banking sector is excited about cryptocurrencies as they promise to transfer much of the mundane, repetitive tasks away from the banks to the customers and their devices. Banks can create and manage wealth rather than handle cash and payment systems.
Crypto startups are leveraging new technologies, and they find nothing wrong with it. They argue: if you don’t adopt and use the best technology, others will.
Striking a balance between these divergent views and interests is hard for any government. The Indian government is struggling to find a way that satisfies all the groups and interests. The Indian cabinet has authorized Prime Minister Narendra Modi to take the final decision.
On December 11, PM Modi’s Twitter account was hacked by some unknown bitcoiners who posted a ludicrous claim through the hacked @narendramodi handle that the Indian government has accepted bitcoin as the legal tender. The incident provided fresh fodder to the opposition during the current Parliament session
On Monday, senior Congress leader Adhir Ranjan Chowdhury raised the issue during Zero Hour in the Lok Sabha. He attacked the Modi government and said
“At a time when the government is considering a ban on cryptocurrency, the prime minister’s Twitter handle is compromised, and tweets are posted about the government accepting cryptocurrency as legal tender and had purchased 500 Bitcoins for distribution among citizens. This is the biggest security issue before the nation.”
Turning the political heat on the government, he demanded that the government make its stand clear on cryptocurrencies and the upcoming crypto bill. It will be worth watching what direction the Government takes in the crypto bill. Many of the other countries are also waiting for the Cryptocurrency bill since Indian banking system is one of the most modernised in the developing world. (IPA Service)