The government has signaled that an all-out ban on crypto-currencies in India is not part of its strategy for regulating the industry, said Vikram Subburaj, chief executive officer of Giottus, a leading crypto-currency exchange. In an interview with MediaNama, Subburaj said that despite the initial panic and sell off among Indian investors after the government the proposed crypto-ban, the market has rebounded with more investors coming onboard.
The government announced that it would introduce The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will ban “private” crypto-currencies while at the same time providing the Reserve Bank of India (RBI) with the requisite legal powers to develop a central bank-backed digital currency (CBDC), according to the official Lok Sabha Bulletin Part II for the Budget Session 2021 of Parliament.
Since announcing the proposed legislation, the Finance Minister has clarified that the government will give investors a window to square their holdings and that a “calibrated” policy is being planned. According to Arjun Vijay, chief operating officer, Giottus the government should consult the domestic industry while formulating its policies and that India’s crypto-currency firms should be allowed to participate in building a Digital Rupee, as the government intends.
Edited excerpts from MediaNama’s interview with Vikram Subburaj, chief executive officer and Arjun Vijay, chief operation officer of Giottus, follow.
Government has indicated some positive signals
With the Finance Minister stating that the government would have a calibrated approach, the two founders said that the government seems to be moving to a middle ground when it comes to regulations, between a complete ban and no regulations whatsoever.
The government should not be worried about crypto-currencies replacing fiat currencies, because they do not behave like currencies as their price is not stable, said Subburaj.
“If you just think about Bitcoins as a crypto-asset and not a currency, then everything that applies to the gold market as applies to Bitcoin. India does not control the gold prices globally, but we are one of the major players who can decide the price but not the only player. The government can also get to a level where it hold crypto-currencies as an asset. Even the investors buying cryptos in the West are buying it as an asset,” he said.
Vijay said that people always fear what they don’t understand, even if one talks to Elon Musk (Tesla Inc.) or the Winklevoss twins (founders of crypto-exchange Gemini) their understanding of Bitcoin is limited. Without a constant monitoring mechanism by regulators, the government’s move to ban crypto-currencies will not solve everything, he said.
“This system is evolving rapidly. The government needs to look at this carefully, but what they need to do is to have a dynamic program. They need to come up with solutions and there needs to be a sequence of regulations just like for the internet or data privacy. A body like the Securities and Exchange Board of India should monitor this space continuously. It is not like you have a committee meeting once in a year and take a decision. There needs to be a standing committee,” he said.
Impact of Crypto-ban law announcement
Subburaj said that having been in the industry for a few years now, they have noticed that any news or rumor that could come from the government on the regulatory, particular surrounding bans, only has a short term impact.
“When the news came out that there might be ban there was a lot of panic selling for the initial few days. But when people are panic selling, there is a good movement in the price, which brought the market back to normal. There are more buyers than sellers and more people are want to enlist. We are getting more and more inquiries from people now.”
Subburaj said that most banks were excited to work with crypto-exchanges post the Supreme Court’s verdict in March 2020, overturning the Reserve Bank of India’s April 2018 circular which barred banks from working with crypto-firms.
“Existing relationships continue to go on without an issue, even after the recent news of a ban, but developing a relationship with the new bank, it’s a bit becoming a bit tougher. But even last year, we were sure if the RBI gave a clear communication [last year] that banks can start doing normal business. I don’t think this communication has clearly gone down, so there’s a lot of confusion,” he said.
Crypto-currencies are now mainstream
Subburaj says that the government cannot take a hard stand against Bitcoin or crypto-currencies in general when globally they are being accepted by large corporations and financial institutions. The longer this government waits longer, the government pushes this matter into future,” he said.
“There are millions of investors to take into consideration. I think there’s definitely been a sea change compared to three years ago where even the world’s biggest banks, the global banks were completely against us and they were started building their own coins or JP Morgan, for instance. And now you’re seeing a lot of them now buying cryptos through their treasuries,” he said
According Vijay, Bitcoin and other crypto-currencies have come off age and in a post pandemic world, the rise in crypto prices and its adoption signifies a big inflection point.
“There are two parts. One is looking at the short term maturity cycle. A lot of people don’t touch small cap stocks. But once it reaches a certain size, it kind of becomes inevitable. Everyone wants it to be part of the portfolio. In 2017, the whole buildup was about institutional adoption. But we never saw any large institutions coming and betting for Bitcoin. MasterCard is talking about crypto and how they are specifically launching crypto based cards. There’s much more trust, much more belief,” he said.
RBI should have a plan 10-15 year plan for CBDCs
Subburaj said that the government’s digital currency or Central Bank-backed digital currency should be used for a specific use-case, like the public distribution or ration system. “The beauty of crypto-currencies is that there are thousands of them, solving thousands of problems. CBDCs should be used in a few use-cases and bringing in blockchain technology is going to work very well. But it is not a panacea that will solve all of India’s problem,” he said.
According to Vijay the CBDC is going to be a six-month project of experimentation and that there should a sandbox. The RBI needs to look at this from a 10 to 15 year innovation point of view, he said.
“The negatives of a CBDC are almost nothing, while the potential is immense. CBDCs will be centralised and they do not need to be on public distributed network. It’s going to work on the dynamics of a private blockchain, so you need just few servers to run. This will be another parallel form of financial channels like NEFT, RTGS or UPI. You can do it under India Stack and let people to innovate and build over and above the CBDC. They should come up with white papers, then ask for comments and then take a calibrated approach.,” he said.
Transition to decentralised exchanges
Both Subburaj and Vijay explained that the crypto-universe suffers from a high transaction fee regime because there are only so many crypto-miners in the industry, willing to spend computing power to solve each crypto-graphic block on a blockchain.
“At present, Bitcoin block reward is 6.25 Bitcoin coins for every 10 minutes. So if you look at it approximately someone is winning Rs 2.4 crore every 10 minutes. Some part of this money goes into hardware and some part goes to electricity costs. You cannot have real-time fluctuations in the cost of mining, if the crypto-token’s price changes significantly. ” said Vijay.
He explained that even though Bitcoin is dynamic so even if the prince becomes $80,000, the cost of mining will be self-correcting. However, there is only a limit up to which investors will be willing to spend on rewarding miners. The future therefore is to transition to decentralised exchanges that do not require the computing power that today’s crypto-exchanges rely on.
MediaNama has prepared a guide on crypto-currency regulations in India, listing the government’s position over the last few years and various policy recommendations; read it here: A complete low-down on crypto-currency regulation in India.