India’s largest cryptocurrency exchanges CoinDCX and WazirX, are witnessing a sell-off. Bitcoin price has plunged over 14% on WazirX, and dog-themed cryptocurrencies SHIB and DOGE have witnessed double-digit losses.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 (“Bill”), which is yet to be officially approved by the Cabinet, seeks to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India.
In 2018, the Reserve Bank of India adopted a ring-fencing approach. However, the restriction on the purchase and sale of cryptocurrencies was struck down in March 2020 by the Supreme Court of India.
The Bill also seeks to prohibit all private cryptocurrencies in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
The definition of ‘private’ cryptocurrencies has not been clarified by the government yet. However, it is likely that Bitcoin, Ethereum, and cryptocurrencies of the same kind may not be banned since these are based on public blockchain networks. This means transactions made using these networks are traceable while still providing a degree of anonymity to users.
This still keeps a grey area for other cryptocurrencies which are built on public blockchains, that conceal the transaction information to offer privacy to users. This implies that all privately owned cryptocurrencies and platforms that use cryptocurrencies for their transactions will be either banned from operation or certain restrictions may be imposed on their usage throughout India.
Tips to safeguard your cryptocurrencies:
- Self-custody Wallets could be a safe haven:
Transferring cryptocurrencies from one wallet to another is essentially no different from sharing files from one computer to another, so a regulatory ban might not take away people’s ability to send cryptocurrencies to each other. Hence, investors can choose to move their crypto assets to self-custody wallets, which are digital devices in the form of USB drives, micro SD cards or smart cards. These devices store the investors’ private Bitcoin key or keys.
- Send it abroad for safety:
Another option for Indian investors in the event of a crypto ban here would be to transfer their crypto assets to their friends and family based abroad.
- Arbitrage trading of cryptocurrencies:
Crypto arbitrage trading is the process of buying a digital asset on one exchange and selling it simultaneously on another where the price is higher. Therefore, investors could exchange crypto backed by Indian Rupee for crypto backed by USD for protecting their investment. The price drop has opened an exciting arbitrage opportunity for traders. Investors are capitalizing on the opportunity to buy altcoins on Indian exchanges at steep discounts and selling them on global exchanges like Binance.
Since a cryptocurrency, in essence, lacks any inherent value or liquidity, it might prove difficult to actually ban the tokens which could be called an asset, a commodity, a currency, or even a security. Millions of people around the world could, theoretically, hold such a currency – which are basically pieces of code that can’t be ‘banned’ – and still agree to use it as a medium of exchange, which will then lend it value.
However, a blanket ban from the Center would force all crypto exchanges to stop operations in India. For example, Huobi, one of the world’s largest crypto exchanges, had to do the same when China issued a blanket ban on cryptocurrencies earlier this year in September.
Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.