The crypto industry is expecting a brain drain similar to what happened in 2018 after the Reserve Bank of India directed banks to desist from dealing in any transactions involving cryptocurrencies.
Blockchain experts rushed to regulated countries like Switzerland, Singapore, Estonia and the US, and an outright ban will have a similar effect, according to Mathew Chacko, partner at Spice Route Legal. He said blockchain innovation, which has a role to play in governance, data economy and energy, will come to a grinding halt in India.
“For any innovative company to take advantage of blockchain the way they will do it is to use crypto assets to finance the growth of the blockchain company and if you ban that, it’s like you are permitting electric vehicles, but not funding it,” Chacko said.
Akshay Aggarwal, the founder of Blockchained India, a pan-India community of over 30,000 blockchain practitioners, was part of the industry push in 2018 for pro-crypto regulations. After a brief respite in March 2020 when the Supreme Court overturned the RBI’s directive, Aggarwal says that the industry is back to square one.
“Moving out seems better than letting go of our work,” Aggarwal, 29, said. “So, it is still quite unexpected especially considering how regulators around the globe are coming around to legitimising it.”
“We aspire to now serve first those in the jurisdictions that are liberal enough in the hope that we would again come to Indians when the time is right,” he added.
Darshan Bathija, CEO of Vauld, a crypto exchange platform, said the company has started the process to obtain licences to become compliant in the UK, Singapore and the US.
A blanket ban on cryptocurrency would outlaw exchanges, legal experts said. ET earlier reported that the proposed law would give crypto exchanges 90 days to unwind in India.
Other exchanges like ZebPay already have a presence in Australia and Singapore. Bathija added that a similar move is on the horizon for other exchanges as well.
Chacko said talks about a ban have a “chilling effect” on international exchanges looking to enter India or investing in Indian startups dealing with cryptocurrency and blockchain technology.
There are seven million crypto holders in India with over a billion dollars in crypto assets. The majority of the crypto traders are in the 25-35 age group, according to officials at various Indian crypto exchanges.
The regulatory uncertainty posed by a complete ban led crypto trader Atharv Mankotia from New Delhi to sell off his entire holdings last week.
“It was expected, but it’s sad,” Mankotia, 28, said. He had a six-figure exposure and sold his crypto assets at a premium after a rally owing to Tesla’s purchase of $1.5 billion worth of Bitcoin.
Long-term crypto traders, however, are more optimistic.
A 28-year-old software developer from Bengaluru, who trades on Malta-based crypto exchange Binance, said even if his crypto assets are frozen in the short-term should the ban come through, he believes the government is bound to change its stance in the long-term.
“It will affect my ability to withdraw Bitcoin to cash, which I worked for very hard. But I know that there will be a future when the regulations will be supportive in India. Because if not, then India will basically set itself up for failure,” he said.
In the midst of the confusion about the future of cryptocurrencies in India, exchanges are promising transparency and urging traders to stay calm, as the bill’s specifics remain unclear.
In their communication to the customers, ZebPay says that an extreme stance toward banning may change once the bill is tabled in the Parliament.
“We are very optimistic that the government will find a way towards positive regulations,” said Vikram Rangala, Chief Marketing Officer of ZebPay.
In a statement released to the public when the news of the crypto ban first made rounds, BuyUCoin wrote, “We are sure the government will understand the situation and find a workaround for the crypto industry to grow in India under its regulations and compliance network.”