Despite panic and speculation, people are still buying Bitcoins and other crypto-currencies a month after the government announced it would ban crypto-currencies in the country, says Neeraj Khandelwal, co-founder and chief technology officer, CoinDCX a leading crypto-currency exchange. In an interview with MediaNama, Khandelwal said that an outright ban on the industry and on crypto-investing would not go far to stop the growing acceptance and interest in crypto-currencies in the country.
A month ago, the government announced that it would introduce The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will ban “private” crypto-currencies while at the same time providing the Reserve Bank of India (RBI) with the requisite legal powers to develop a central bank-backed digital currency (CBDC), according to the official Lok Sabha Bulletin Part II for the Budget Session 2021 of Parliament.
Finance Minister Nirmala Sitharaman told Parliament at the time of the Union Budget that as per the government’s previous position, it does not consider crypto-currencies as legal tender and will take all measures to eliminate the use of these crypto-assets in financing illegal activities or as part of the payments system. Anurag Thakur, the Minister of State for Finance told Parliament on the same day that Bill is being finalised and would be sent to the Cabinet soon, and thereafter introduced to Parliament.
While the government wants to promote the use of blockchain across various use-cases, it has decided to enter the global race of digital currencies or CBDCs while at the same time banning “private” crypto-currencies like Bitcoin and Ethereum among others. Along with the ban on crypto-currencies trading, the government reportedly is working on legislation to legitimise the issuance of Central Bank Digital Currency (CBDC) On Thursday, Reserve Bank of India (RBI) Governor Shaktikanta Das said that a lot of work is going on internally at the RBI and that they will be coming out with some broad guidelines and policy paper on the proposed CBDC shortly. “We do not want to be left behind in this technology revolution that is taking place,” he said.
Edited excerpts from MediaNama’s interview with Neeraj Khandelwal, co-founder and chief technology officer, CoinDCX.
‘Bitcoin being seen as an asset class’
From March last year onward, CoinDCX has been seeing a surge in users coming to their platform, said Khandelwal. “On the other hand, we have also been focused on educating the people because there is very little information about the bill that has come up. Right. And there is a lot of speculation in the market like what does this mean and what is the extent of the ban being planned? How will the discussions in Parliament go? Because Bill has not been tabled. So our main objective has been to calm the masses and also at the same time allow them to invest in this in this asset class,” he said.
“There was a lot of panic selling that we saw in 2017. But this time it’s completely different. Only on the day of the news of the ban and the subsequent day there was some kind of panic selling but after that we have not seen any panic selling. In fact, there is a lot of buying pressure from people because of rising global prices. Bitcoin is being considered as an asset class, just like gold. So we are seeing more and more general people coming onto the platform, who are not necessarily from a banking of IT background, because awareness is also growing” —Neeraj Khandelwal, co-funder and CTO, CoinDCX
Indian investors are scared to an extent, so our focus is on reassuring them that our platform will be available to do market making, which is matching buyers and sellers, Khandelwal said.
‘Need a two-fold crypto regulation in India’
Internally, crypto-entrepreneurs expect the government’s ban to be lenient on them and their clients since there are at least 7.5 million customers trading actively in ‘private’ crypto-currencies in the country, Khandelwal explained. “The market is already growing 20% every year in terms of number of users and it is nearly 20% of the stock market. We have been discussing with various stakeholders, and we do not expect that a blanket ban will be put in place. In fact, whenever the Bill is introduced and we expect some kind of productive and constructive discussions,” he said.
“People have said that it can be treated as an asset class, so that’s a big, huge plus, since it can be easily regulated as an asset. That’s not a very difficult job and difficult task. It has been implemented in various other jurisdictions and countries. Crypto-currency cannot be and should not be used for payments and currencies and settlements. It has to be regulated as an asset class for investment purposes”—Neeraj Khandelwal, co-funder and CTO, CoinDCX
Khandelwal said that India should pursue a two-fold approach when it comes to regulation. First, the RBI would need to step in to ensure that crypto-currencies are defined under its ambit as non-fiat currency and thereafter, it must frame rules for banks and payment companies to provide services to crypto and blockchain firms including the use of banking channels for investments. Thereafter, crypto-exchanges like CoinDCX can be separately granted licenses from the Securities and Exchange Board of India (SEBI). Finally, a small body can be created to frame specific uniform rules for all companies and investors dealing with crypto-currencies, he added.
“The government should not start controlling the prices of crypto-currencies when there is volatile activity. However, it should frame rules if the prices in India specifically fall too low or are too high compared to the global market. The government’s regulations should address the lack of liquidity available in the market that can be enforced and the overall rules of trading” —Neeraj Khandelwal, co-funder and CTO, CoinDCX
‘Stablecoin model for CBDCs offers convenience’
If the RBI creates a non-interest bearing digital currency, which has the same value of a fiat currency, it will be a stablecoin that can be used by crypto-exchanges and investors, said Khandelwal. The RBI needs to think about its CBDC from a practical level, says Khandelwal. “Banking is very costly and it is non-transparent. You don’t know what is happening inside a bank and you never know how money’s moving inside. So a CBDC has the potential to eliminate all this and make it more transparent for the public in the long run,” he said.
“Basically putting a digital currency in between crypto and fiat currency, is essentially a stablecoin. That is the best model followed everywhere. If you actually look at it, more than 90% of the volumes crypto-currency markets happen in stablecoin markets. They can be used as an on-boarding and off-boarding tool, people can use them to start buying crypto-currencies. This is a very convenient model which we expect India will eventually evolve into”—Neeraj Khandelwal, co-funder and CTO, CoinDCX
‘We want to build all types of financial products’
While CoinDCX has launched an easy to use mobile app for its trading and investing clients, it also has an education portal to guide young and new users. Khandelwal said that ultimately CoinDCX wants to be a financial services player, offering all types of products from banking to investment solutions. “The first thing is that we should get a security license so that we can open an exchange formally,” he said. Khandelwal added that if in the future the RBI allows crypto-firms to get a payments bank or small finance bank license, it would allow crypto-currencies to gain mainstream acceptance in the long term.
“We believe that we can be the largest Indian exchange out there with more than 50% market share. Eventually, we will have 25 million people investing in crypto-currencies in the next two years in India, depending on how the government brings regulations”—Neeraj Khandelwal, co-funder and CTO, CoinDCX
MediaNama has prepared a guide on crypto-currency regulations in India, listing the government’s position over the last few years and various policy recommendations; read it here: A complete low-down on crypto-currency regulation in India.
- Interview: ‘India should bite into the $1 trillion crypto opportunity’, says Nischal Shetty of WazirX
- Exclusive: IAMAI Finalises Code of Conduct For Blockchain and Crypto-Firms
- Crimes Involving Cryptocurrencies Fall By Half To $10 Billion, India ranks high on illicit darknet activity