the great crypto scare

on the evening of November 23, the cryptocurrency market saw a 20% flash-crash. it was the biggest one since the crash that followed a problematic rollout of Bitcoin as legal tender in El Salvador at the beginning of September. but this time, the reason behind it was at the opposite end of the regulatory spectrum. where El Salvador has embraced Bitcoin, the Indian government seems to be pushing for a ban on it. its proposed “ban on all private cryptocurrencies” led to this latest drop, and has Indian investors and ecosystem on high alert.

long time coming

they say, while the cat's away, the mice will play. to an extent, that has been the case with cryptocurrencies in India, with the government taking its time to get around to regulating the ecosystem. it seems set to finally discuss the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the upcoming winter session of parliament. however, the description accompanying the bill remains the same as it was when it was tabled in the budget session of parliament at the start of the year. it is largely in line with the RBI’s public stance, which calls for a sort of blanket ban, while allowing certain uses of the underlying technology.

the key term here is “private cryptocurrencies”, which as per a 2019 Dept of Economic Affairs report refers to all cryptocurrencies except for those issued by the state. this would include the likes of Bitcoin and Ethereum, and push India back to the days of 2018 when an RBI ban stopped Indians from participating before it was quashed by the Supreme Court last year.

a ray of hope

however, following the newsbreak, there have been many discussions surrounding the term and whether its definition remains the same at present. there are some that propose “private cryptocurrencies” may refer only to privacy-centric crypto tokens such as Monero that make all transactions on their blockchain completely untraceable. others believe that the government will classify many of the cryptocurrencies as financial assets to safeguard small investors.

however, what we know for certain are that there are going to be “certain exceptions to promote the underlying technology” i.e. blockchain technology. this might mean that we end up with a scenario where blockchain-based applications such as DeFi (decentralised finance) or NFTs (digital collectibles) continue to blossom, but with a central bank digital currency (digital Rupee) issued by the RBI.

The crypto ecosystem has an apt term for the current scenario: FUD (fear, uncertainty, doubt). Having weathered similar bad news from the likes of China, it’s fair to say hat the crypto world will move on with or without India. But can India afford to miss the boat?