Government Considers Law to Ban Cryptocurrency as Usage Surges

Cryptocurrency is one of the few sectors that boomed during the lockdown with both the number of new user sign-ups and volumes of trading shooting up like never before. Cryptocurrency refers to virtual tokens that facilitate secured, online payments and are secured by cryptography. At present, there are thousands of cryptocurrencies—mostly based on blockchain—that vary in specifications and functions.

Spike in new users and trading volumes

As per estimates, between January 2020 and May 2020, the country contributed new users at an average monthly increase of 28%. Paxful, a peer-to-peer exchange saw a whopping increase of 883% rise in bitcoin trading volumes compared with the same period last year. The monetary value jumped from $2.2 million to $22.1 million.

Another global crypto exchange Okex has also seen a spike in activity from the Indian users. In fact, the exchange saw Indian user activity surge by over 545%, while new users from India rose a humongous 4100%.

The lockdown also proved beneficial for the local crypto exchanges that witnessed a ten-fold increase in trading volume. The Indian cryptocurrency market is on an upswing with global exchanges looking to expand in India. Home-grown crypto-exchanges are also launching at breakneck speed with venture capitals increasingly looking to invest in Indian cryptocurrency startups.

That said, currently, cryptocurrency is not a legal tender in the country. As for operating crypto exchanges, the activity is legal, but is fraught with many legal hurdles that make it difficult to operate them.

RBI ban in 2018

It may be remembered that in 2018, the Reserve Bank of India, vide a circular, had banned trade in cryptocurrency and prohibited financial institutions from providing cryptocurrency-related services. According to the circular, the entities regulated by the central bank could not sell or purchase cryptocurrency. This was on the grounds that these virtual currencies had no stamp of the government and trading in these digital currencies may jeopardize the banking system in the country. However, earlier this year—in March 2020—the Supreme Court had set aside this circular, paving the way for trading in virtual currency.

Government considering a law to ban cryptocurrency

In response to the Supreme Court ruling in favour of the digital currencies, the government of India is now mulling a law that would ban the use of cryptocurrencies in India. Reportedly, the finance ministry has already initiated inter-ministerial consultations for the ban.

The article has been written by Neetu Katyal, Content and Marketing Consultant

She can be reached on LinkedIn.