India is a country which holds great potential it comes to the mainstream use of cryptocurrencies. However, the country is currently stuck in a legal dilemma as cryptocurrency exchanges in the country are waiting for an official announcement from the country’s Supreme Court. Due to a recent ruling, operators of cryptocurrency exchanges are barred from access to banks. It seems like 2018 is a good year for cryptocurrency in India. The Finance Minister in India has stated that the government will be working hard to ensure that cryptocurrencies are not used to find criminal activities.
In other words, the government does not want to recognize cryptocurrencies as a legal tender, and it will work hard to ensure that cryptocurrencies will not be a part of advancing the already huge black market within India. In this regard, one thing remains unclear. These exchanges want to know whether or not India will officially ban the use of cryptocurrencies in the country. Judging from various sources, it may seem like India has officially banned the use of virtual currencies. In fact, this is evident when RBI chose to end the relationship between banks and any other cryptocurrency exchange.
Therefore, it is still unclear whether or not India is banning cryptocurrencies within the country. In July 2018, the RBI has ruled out an order to shut down all existing cryptocurrency accounts in the effort to push exchanges out of business. Any cryptocurrency related banks accounts will also effectively no longer be allowed. This has caused the cryptocurrency community within India to feel more exasperated as it is affecting the ecosystem. As an impact of the closing down of cryptocurrency related bank accounts, businesses start to feel anxious, and they hope that this will be clarified by the government.
Those who are most affected are the exchanges operators who are waiting for the official verdict by the government in July. However, some of them can’t afford to wait as some have made the move of moving out of the country. On the other hand, there are exchanges which are shifting to another business model which is only allowing cryptocurrency to cryptocurrency trading which is legally recognized within India.
It is possible that India might apply goods and services tax to cryptocurrency trading as cryptocurrencies could be classified as an intangible good. Reports claim that a tax of 18% is currently being proposed for cryptocurrencies.
Cryptocurrency traders in India are feeling anxious
As a direct implication of this classification, it means that cryptocurrency traders will have to tax every transaction that they make. On top of that, cryptocurrency miners will also lose 18% of their earnings. For traders that trade in other countries, it could be classified as imports and exports. These transactions will be subject to the integrated goods and services tax. If this brings the bell with you, it would be the taxation framework which was important cryptocurrency traders in America.
In fact, cryptocurrency traders in America are suffering from a similar fate because cryptocurrencies are classified as a property in the country. As a direct implication of this, selling it would incur taxes. This means that every transaction that these traders get into are taxable. Despite this, holding the cryptocurrency will not be taxable. Despite this, it simply means that every transaction that these traders get into will be taxed similarly to India.
Meanwhile, the practice of mining Bitcoin may be classified as a supply of services. Under the taxation, the miners will have to register under the goods and services tax if the report is over $30,000.
Resistance in the crypto community over impending ban
However, not everyone has been silent about the banning. An exchange in India has decided to argue against the crackdown on exchanges. The owner of the exchange argues the fact that the Indian constitution makes it possible for citizens to perform any occupation, trade or business. On top of that, the bank has not provided strong reasons for them to stop transactions with any cryptocurrency related bank accounts. The government has also not come up with an official decision to ban cryptocurrencies which means that banks are doing this on their own accord.
Making the move
Some of the blockchain start-ups within the country are already making the shift from India to other countries. Among the country’s which are the potential relocation, spots are Singapore and Japan. On top of that, another country which is a unique selection is Estonia because it has an e-residency program which makes it easy for any cryptocurrency business to get incorporated into the country. On top of that, the government regulations within Estonia is highly cryptocurrency friendly, and they have no tax rates.
Business as usual
Despite this, these cryptocurrency exchanges in India are still operating as usual and are seemingly not affected by the ban. This is mainly because banks have had a difficult relationship with cryptocurrency exchanges from the past. It is possible that Indian cryptocurrency traders can expect a good and services tax to be imposed on their cryptocurrency transactions.
CoinDCX is a cryptocurrency exchange that allows customers to track their international trade in Indian currency even after the central bank ban the transactions using their services.CoinRecoil is a new Indian cryptocurrency exchange which is looking to set their business within the next few months. This may seem odd given the fact that an official decision from the government can cause a huge blow and the ecosystem. However, these firms believe that there is a potential that cryptocurrency may be able to thrive in the country. So far, the indecision of the country over the status of cryptocurrencies is a good enough reason for them to continue operating.
The Finance Ministry is expected to come up with recommendations for of virtual currency regulations while the Central bank of India is looking into launching its cryptocurrency. Despite these prospects, the cryptocurrency exchanges believe that new technologies and inventions always meet resistance by the government would have really are introduced in the market. The same is happening even in other industries. Therefore, virtual currencies simply have to be resilient against the changes which are occurring and prove to the government that there is something worth investing in on cryptocurrencies.
On top of that, India presents unique ways that cryptocurrencies can truly flourish. There is a significant potential due to a large number of people within the market and the increasing purchasing power of the citizens.
Adopting a new business model
For the cryptocurrencies exchange, they will not focus on the traditional method of trading in cryptocurrencies anymore. Instead, they’re moving to a business model of allowing cryptocurrency to cryptocurrency trades.
Therefore, a prerequisite of trading on their exchanges that they must already have a cryptocurrency in another exchange. However, this business model has limitations as it will be confined to the existing customers of the exchange.
Koinex and Zebpay are examples of exchanges that have adopted this business model. Besides that, these exchanges are also looking at other countries as possible markets for their exchange. Some of them are launching another branch in the Philippines and are looking at the potential countries in Asia that have favorable cryptocurrency regulations. Among the potential areas that these exchanges can expand to are Singapore, Australia, Canada, and Thailand.
Despite this, there are still players in the cryptocurrency exchange industry that are feeling the pinch from the decision of the bank to shut down the accounts. This is mainly because they have invested a lot in establishing their business. As a result, many of them are risking in by going ahead and continuing their operations instead of waiting for the country to come out with an official decision.
A possible reason for India to adopt cryptocurrencies
Venezuela is among one of the countries around the world that have released their version of cryptocurrency which is known as Petro. In fact, Venezuela is one of the world’s second-largest crude oil producer. In a recent negotiation with India, they have offered a 30% discount on their petroleum imports from Venezuela but only if the payments are made using their cryptocurrency which is backed by the government. This suggestion was proposed to the Indian government during their visit to the country from March to April. So far, there has been no official proposal released.
Venezuela officials are working hard to convince the India government that they are open to the negotiation as long as they consider their offer. In fact, there is a huge interest in India’s private sector but India’s hesitance to put out an official verdict about the cryptocurrency space is making it much more complicated. With Venezuela’s persistence, they might be able to convince India to allow cryptocurrency in the market. This is mainly because India imports nearly 8% of its oil from Venezuela back in 2017. The total amount of their imports reach around $5.5 billion. Therefore, it is easy to understand why a 13% discount on the oil offering can present a lot of savings.
Venezuela has partnered with Coinsecure, which is an India-based digital currency exchange to sell its cryptocurrency which is petro in India. However, India is still stuck in limbo because they are still not comfortable with the idea of virtual currencies.
Petro is a cryptocurrency which is released by the Venezuela government. It made history when it became the first ever cryptocurrency which was backed by the government. Initially, this coin was launched to tackle the problems with US government sanctions. At the moment, Venezuela is in a highly fragile state as it has a weak economy, hyperinflation and also where the value of local currency. Therefore, Venezuela has every reason to try and find a solution to get the country out of this problem. The price of the single Petro is tight to the price of a single barrel of oil.
India Is undoubtedly tempted to take on Venezuela on this offer as the discount can save up to $1.6 billion annually. However, critics believe that this cryptocurrency is simply the last effort that Venezuela is doing to prop up a failing regime. Therefore, there are also reasons to believe that India might not take the bait. The Petro cryptocurrency is seen as a way for the Venezuelan government to get out of the US sanctions and help move dollars out of the country. India has a good reason also to consider the offer because the annual savings can be massive.
India stands to lose by not adopting cryptocurrency
If India does choose to ban cryptocurrencies in the future, this could lead to the money which is supposed to be maintained within the economy to float into other countries. This is similar to what happened to China as the government didn’t want capital to flow into cryptocurrencies. However, the opposite happens when Chinese investors and cryptocurrency traders moved to other exchanges such as Korea to trade as usual.
Therefore, India should be looking at the moves that are being done by regulators in other countries to learn about the impact of banning cryptocurrencies in the country. As India has not fully clarified made it official that cryptocurrencies are illegal, there is a possibility that the government may be considering the implications of banning the industry. For some, they believe that accepting cryptocurrencies in India will mean that it will help flourish India’s economy. Even with banning cryptocurrencies, these Indian investors will simply move to international exchanges even if the Central bank of India cut of their link. This is mainly because people are allowed to trade cryptocurrencies to cryptocurrencies within the country. It remains to be seen what is going to happen to India in regards to the response about cryptocurrencies. However, one thing for sure if the government is going to lose a lot of money if they choose not to allow cryptocurrency trading.