Why is the Indian government wavering on whether to be strict or lenient on cryptocurrencies?

In the development of cryptocurrency, there has always been a phenomenon: if it is regulated, it will die, and if it is released, it will become chaotic. Faced with the emerging digital currency industry, government departments have always been entangled. For example, the Indian government has recently made new moves.

In mid-March, Bitcoin was rising rapidly, breaking through the $60,000 mark and setting a new historical record. However, a senior Indian government official leaked information to the media, causing Bitcoin to plunge by $2,000 in an instant, a drop of more than 3%.

What is this big news? It turns out that India will pass legislation to ban cryptocurrencies. All holding, issuing, mining, trading and transferring crypto assets will be deemed illegal. The bill will give cryptocurrency holders up to six months to clear out their holdings before being punished. If the ban becomes law, India will be the first major economy in the world to make holding cryptocurrencies illegal.

Recently, there were reports that the Indian government is considering restricting the Internet Protocol (IP) addresses of exchanges and companies trading cryptocurrencies, which would create more uncertainty for digital asset investors in India.

In fact, the Indian government has always been strict about cryptocurrencies. As early as 2013, the Central Bank of India (RBI) announced a conclusion that the authorization, currency and operation of cryptocurrencies are risky because it is neither a legal foreign exchange transaction nor an authorized tender. In 2018, the Central Bank of India issued a strict order that banks should not handle corporate business related to cryptocurrencies.

However, there was a turnaround in 2020, when the Indian Supreme Court lifted the Indian central bank’s ban on cryptocurrencies, which created a wave of positivity among many digital forex traders. However, the Indian government’s attitude towards cryptocurrencies is now beginning to swing between regulation and prohibition.

Today, major countries in the world are actively developing their own digital currencies, and India is no exception. On the one hand, it bans other cryptocurrencies, and on the other hand, it is also encrypting the possibility of studying official digital currencies. At the end of January this year, the Indian Parliament announced that "the Central Bank of India will launch our country's cryptocurrency." At the end of February, the Governor of the Reserve Bank of India, Das, revealed that in the past few months, the focus of monetary policy has been on digitalization, and digital currencies are being studied. A broad digital currency specification will soon be issued to replace privately issued cryptocurrencies.

In response to this, the Internet and Mobile Association of India (IAMAI) publicly stated that cryptocurrencies and digital currencies are not in a life-and-death relationship, and there is no need for the Reserve Bank of India to ban Bitcoin in order to launch an official digital currency.

A spokesperson for the association said, “More than 300 startups involved in cryptocurrencies have created tens of thousands of jobs and hundreds of millions of dollars in revenue and taxes. The proposed ban will undoubtedly lead to property losses for nearly 10 million Indian investors.”

Banning it outright is definitely not a good idea. Although the Indian government intends to ban unofficial cryptocurrencies, it also fully recognizes the importance of blockchain expertise in financial business.

It is estimated that about 8 million people in India currently hold about 100 billion Indian rupees (8.951 billion RMB) in cryptocurrencies. Given the huge market for cryptocurrencies in India, strategically designing a regulatory framework seems to be more likely to stimulate the development of Digital India.