The future of cryptocurrencies in India: there will be a ban or the birth of a new class

By Amanjot Malhotra

The crypto industry has grown over the last decade from a small community of developers to a trillion-dollar global economy that encapsulates sophisticated technology, various uses and millions of users. This remarkable growth has provided significant opportunities, ranging from infrastructure security to entirely new economies such as Metaverse, NFTs and DAOs.

Cryptocurrency has the capacity to change the established patterns of the current financial ecosystem. A few challenges still exist because technology is still in its infancy. Governments around the world have expressed their concern about the use of these digital assets, which can be partly explained by fear and partly by a lack of stability.

Landscapes all over the world

The world’s views on cryptocurrencies are sharply divided, with one group passionate about their growth and continued technological progress and the other group concerned about their decentralized nature.

El Salvador is the first and only nation to formally recognize Bitcoin as a legal tender on June 9, 2021. Others worry that it will be used to fund illegal activities such as drug trafficking, money laundering and terrorism, while see it as a threat to their current monetary systems. The use of cryptocurrency is banned in several nations, such as China, Egypt, Qatar and Vietnam.

Earlier this month, the United States unveiled a plan to establish new rules for cryptocurrencies, the assessment of which could affect other nations.

The majority of cryptocurrencies will be seen as commodities instead of securities, and the CFTC (Commodity Futures Trading Commission) would be responsible for enforcing the regulations, which was the main feature of the bill.

The new measure will also mandate that issuers of stablecoins hold high-quality liquid assets in an amount corresponding to the value of all issued stablecoins and publish their holdings.

In light of the general pessimism regarding cryptocurrencies, this is a progressive move as governments now recognize the opportunities and improvements they can bring, transfers are a perfect example.

Current situation in India

Despite the ambiguity surrounding cryptocurrencies in India, the nation attracted investment in blockchain and cryptocurrencies totaling $ 638 million over 48 fundraising rounds in 2021, according to Tracxn. In the first half of 2022, startups in the crypto and Web3 sectors have already closed 43 agreements totaling more than $ 1 billion in funding. This despite current market conditions. It goes on to explain how the bear market is simply a bump in the road.

The government’s attitude towards digital assets has developed significantly in recent years, from a direct ban on cryptocurrencies in 2016 to some new cryptocurrency rules issued earlier this year.

The proposed law will tax income from cryptocurrencies and other digital assets at a rate of 30%, and it also includes a provision for a tax deduction at source (TDS) of 1% for transactions with values ​​above ₹ 50,000.

In addition, India plans to launch the digital rupee – a CBDC (digital currency for the central bank) – during the current financial year.

The way forward

India expects crypto-specific laws in the near future.

Many concerns remain unanswered, including whether cryptocurrency is legal, whether cryptocurrency can still be banned, and how digital assets such as non-fungible tokens (NFTs) fit into India’s regulatory system.

Although it may take some time to put regulations in place, the recent announcements about taxes and the CBDC are the first tangible steps towards recognizing that cryptocurrency may be here to stay.

Maybe a framework, like the one the United States recently released, might be a good place to start.

Predictions for the Indian crypto market:

Centralized cryptocurrency exchanges

Centralized exchanges will see a significant drop in volumes and an emigration of users. Many of the users will go to sleep and just keep the investment as it is for a long period of time. Centralized exchanges will introduce more long-term investment products in the market such as Crypto Baskets which work in the same way as equity funds in equities.

Decentralized finance

Decentralized finance is the future, and everyone in the ecosystem is looking forward to it. The only problem with DeFi is that it just is not mature enough to attract the main audience. We will see this area develop faster than before, in addition to becoming more compatible and supported by assets in the near future to attract more retail investors from India.

NFT

NFT markets are here to stay and develop in the next cycle of the market. What the NFT achieved in the last bull ruin is that they made everyone realize different ways to make money. The NFT market will mature and move towards a more utilitarian form of NFTs and continue to attract investment from India.

Play to make money

According to industry reports, India is the largest blockchain gaming market in terms of numbers, and the entire gaming community to make money is looking to the Indian market to lead the industry in the use of blockchain games. We will see many Indian users start playing Blockchain games and make a living playing games.

Concluding thoughts

Cryptocurrencies have significant potential to improve financial inclusion for both individuals and companies in a developing country such as India. Cross-border payments can be improved, especially by cutting transaction costs and processing times. Peer-to-peer lending, international trade and money transfers benefit from this.

India’s underlying fundamentals are strong. India has the talent to create the next wave of crypto and Web3 companies, with over 4 million developers capable of embracing cryptocurrency technology and a young population ready to use them.

It is safe to say that with all the resources India has at its disposal, the use of these digital assets, coupled with a cryptocurrency-friendly framework, will put the country at the forefront of a trillion-dollar industry.

The author is country manager – India, Bitay