New Delhi is once again trying to reign in India’s vibrant cryptocurrency scene with a fresh bill to regulate cryptocurrencies set to be presented before parliament by the end of this month.
Many Indians have a fractious relationship with the Reserve Bank of India, the Indian central bank.
When New Delhi outlawed the 500 and 1000 rupee note, in what was then termed “demonetization,” millions of Indians across the country, flocked to their local bank branches to hand in the soon-to-be worthless notes.
But while New Delhi ultimately backed down from demonetization, the raison d'être for the move is still as valid today as it was in 2016 – fighting corruption, fake notes and attempting to create a cashless economy by pushing digital transactions.
So it came as no surprise that when cryptocurrencies came about, Indians took to them like fish in water, before the Reserve Bank of India tried repeatedly to outlaw the nascent asset class.
Home to some of the largest and most active cryptocurrency exchanges globally, New Delhi is once again trying to reign in India’s vibrant cryptocurrency scene with a fresh bill to regulate cryptocurrencies set to be presented before parliament by the end of this month.
The government of Prime Minister Narendra Modi is looking to help the central bank issue its own digital currency, while outlawing all private cryptocurrencies except for the promotion of the underlying technology of cryptocurrency and its uses.
While New Delhi’s pronouncement may appear somewhat contradictory, it is emblematic of India’s longstanding love-hate relationship with cryptocurrencies.
In 2018, cryptocurrency transactions were effectively banned before the Supreme Court struck down the restrictions in March 2020.
But now that more Indians are pushing into cryptocurrencies, helped in no small part by the rapid ascent of bitcoin’s price, there have been growing calls to impose stricter rules in the space to prevent more domestic household savings being diverted into digital assets.
Regardless, traders are not sitting around to find out what New Delhi has in store for them next, with an arbitrage opportunity already opening up.
Prices of cryptocurrencies in Indian exchanges are already far lower than they are on other global exchanges.
At one stage, bitcoin was down over 12% on Indian cryptocurrency exchange Wazirx, while it was just 2% lower offshore.
But the arbitrage opportunity is also complex to execute. Getting hold of rupees to buy the bitcoins in India remains a stumbling block and these spreads don’t tend to last indefinitely.
Moving money across national borders is a lot more complex than would seem as well.
Nonetheless, Indian traders are cashing out for now, wary of what the Modi government will do next to curb growth in the cryptocurrency space with if left unchecked, could pose a significant challenge to Indians’ already tenuous relationship with its central bank.