Two prominent cryptocurrency exchanges in India, BTCXIndia and ETHEXIndia, have announced that they will stop trading from March 5th 2018, in view of the Government of India (GoI) stand discouraging cryptocurrencies. They had earlier stopped accepting deposits from January 1st, and have now asked the traders to withdraw all their funds by 4th March.
BTCXIndia allowed trading in Bitcoin (BTC) and Ripple (XRP), while ETHEXIndia was dealing with Ethereum (ETH). The two exchanges have communicated to the traders via email that the recent announcement of GoI on the floor of the national parliament that cryptocurrencies are not recognized legal tenders have created significant uncertainties for their businesses.
During the annual budget exercise of GoI in February 2018, the Union Finance Minister of India, Mr. Arun Jaitley had made it clear that India doesn’t recognize cryptocurrencies as legal tenders. He had also declared that the government will do everything to stop them being used to funding illegal activities, or in payment transactions. GoI has taken this stance after three earlier warnings by India’s central bank, the Reserve Bank of India (RBI), to the crypto traders that cryptocurrencies aren’t legal tenders and anyone trading them will do so at their own risk.
GoI‘s stand of not recognizing cryptocurrencies as valid tenders is based on the following key reasons:
- Cryptocurrencies are mathematical money, and not backed by tangible assets. They are subject to highly speculative trading, for e.g. in 2017, Bitcoin price rose from US $ 1,000 in January to US $ 20,000 in December, and by February 2018 it had plummeted to US $ 6,000. GoI considers such speculative trading on such intangible assets to be risky for Indian citizens, and Indian economy.
- Cryptocurrencies operate outside the control of governments and central banks, often allowing a high degree of anonymity to the traders. This often facilitates funding of criminal activities, including terrorist activities. India is in the middle of a massive crackdown on corruption as well as an all-out war against terrorism, and GoI can’t afford to have cryptocurrencies derail their effort.
- At a time when GoI is trying very hard to clean up the large public sector unit (PSU) banks in the country, making sure that they record non performing assets (NPAs) transparently, and ensuring no new NPAs are created due to corruption, they are concerned that large investments by Indian citizens into cryptocurrencies can affect the recovery of banking sector adversely. After the recent massive recapitalization of PSU banks, GoI simply can’t afford to see massive loss of savings for the Indian citizens, due to cryptocurrency volatility.
- At a time when GoI is cracking down on tax evasion, no tax paid by the cryptocurrency traders is viewed with concern by GoI. While tax guidelines on cryptocurrency trading activities haven’t been formalized, possibilities are that the cryptocurrency traders might have to declare their income from trading as business income, and pay accordingly. Alternatively, they may have to pay short-term or long-term capital gains tax on cryptocurrency investment, based on the duration of their holding.
Annual union budget exercise, the occasion during which Mr. Jaitley had made his crucial declaration about cryptocurrencies, is an important event in India, because key policy outlines are unveiled by GoI through the budget speech and the budget document. It is generally expected that GoI will follow through the declarations. That seems to be happening. The State Bank of India (SBI), i.e. the largest PSU bank in the country, has completely stopped allowing their customers from buying cryptocurrencies using their debit or credit cards.
Several countries have already banned cryptocurrencies partially or fully, for e.g. Iceland, Ecuador, Bolivia, Russia, Sweden, China, Thailand, and Bangladesh. While South Korean government had declared that they are considering proposals to ban cryptocurrencies, they will probably settle with regulating cryptocurrencies. While GoI hasn’t explicitly banned cryptocurrencies, regulation could certainly follow.
It’s interesting to note that in the same union budget speech, Mr. Jaitley has also clearly stated that the GoI is actively exploring blockchain, the technology underpinning the cryptocurrencies, for improved service delivery to the Indian citizens. That’s good news for BTCXIndia, who have now decided to focus their energy on building blockchain-powered solutions.