Image Source : AP/REPRESENTATIVE Cryptocurrency: 5 questions crypto investors are asking from government before likely ban
With India preparing to introduce the much-anticipated Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, in the ongoing Winter Session of the Parliament, all eyes are on what will happen to the investors’ hard-earned money once the ban on all private cryptocurrencies comes into effect. Although Finance Minister Nirmala Sitharaman informed the Parliament that the government has no proposal to recognise Bitcoin as a currency, there are still several questions that the government needs to answer to the investors. The bill will clear the stage for the government to ban all private cryptocurrencies with ‘few exceptions’ and create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India.
The RBI has for long maintained its strong views against cryptocurrencies, saying they pose serious threats to macroeconomic and financial stability. At present, there is no regulation or ban in the country on cryptocurrency. According to a study conducted by the portal BrokerChoose’s annual crypto proliferation index, there are around 10 crore crypto investors in the country and a blanket ban could shake up the entire crypto ecosystem. Therefore, it becomes important for the government to address the queries of the investors so that they don’t lose their funds.
5 big questions that government must answer to Crypto investors:
1. Private Vs Public Cryptocurrency: The government should inform the investors about the difference between private and public cryptocurrencies. For now, there have been talks that the government’s proposed bill will prohibit all private cryptocurrencies in the country. According to Hitesh Malviya, founder, itsblockchain.com, public cryptocurrencies are created and governed by a group of people who are known as miners, validators or delegates. The supply of such cryptocurrencies is highly distributed, they are not dependent on any central authority or organisation. Key decisions are being made based on consensus from a group of people involved in governance. Private cryptocurrencies, on the other hand, are generally created and governed by a central authority or organisation. The supply of these coins is not distributed fairly and organisations behind these projects always keep a major per cent of the supply with them. Private cryptocurrencies carry the risk of market manipulation by insiders. In other words, several cryptographic measures are undertaken in private cryptocurrency to mask the information. This provides the users with a level of privacy that is not in the case of their public counterparts. When an investor makes transactions using a public cryptocurrency, it can be traced.
2. Exit Route: What will happen to exist crypto investors in case of a blanket ban. What will be the exit route for such investors and what will be the timeframe? CapitalVia Global Research, Lead Commodities and Currencies, Kshitij Purohit, said that if the government puts a blanket ban, then crypto investors will look for an alternative and surely look towards the equity market. The regulation, he said, is expected to shift a sizable number of investors to the secondary markets.
3. Regulation: At present, there is no regulation on cryptocurrency. Therefore, the government’s concerns over the misuse of cryptos for illegal activities tax evasion, drugs trafficking, terror acts, money laundering, hawala transactions and more is valid. It could pose a serious threat to national security and a big challenge to the security agencies in India. The government through the bill should tell the investors how it will regulate crypto. Will there be a separate department/body set up under the jurisdiction of the Ministry of Finance or RBI? Or the government is planning to set up a body like the Securities and Exchange Board of India (SEBI) that has mandates to protect the interest of investors in securities.
4. Classification: Although FM Sitharaman informed the Parliament that the government has no proposal to recognise Bitcoin as a currency in the country and that it does not collect data on Bitcoin transactions, investors’ concerns regarding the classification of cryptocurrencies remain unanswered. The government should tell the investors will crypto be classified as a commodity like metal or bullion?
5. Taxation: For now, the government has no provision to levy tax on capital gains generated from investments in cryptocurrencies. The government also has no provision to levy tax on transactions made in currency (be it done through physical mode or digital medium). However, if an individual invests his money (INR) in a scheme like FD, RD etc, the government collects capital gain tax (there is a proper taxation system in place). The government through the bill should give clarity to the investors about the taxation part. If cryptos are allowed for investment like gold or silver, what kind of charges one will have to pay?
Another question that the government needs to answer is about exchanging cryptocurrencies for foreign currencies. For now, if a person is travelling to the US or any other country, he can exchange INR with Dollar. There is no tax charged on this. However, if the person wants to invest in Dollars, it is not allowed under Indian laws. Likewise, there should be a rule written in place for investors whether cryptos can be exchanged for dollars or others? If yes, shall there be any tax on this?
Also Read: BJP MP Nishikant Dubey seeks ban on cryptocurrencies, says ‘Whole world is troubled by it’
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