by Joseph Young
After years of operating without clear regulatory frameworks, self-regulated bitcoin exchanges and businesses will most likely be introduced to a new set of regulations and policies by the Indian government in the next few months.
Ever since the launch of Bitcoin in 2009, analysts and experts have stated that largely unbanked countries such as India present a potentially massive market for bitcoin. India has about 800 million unbanked citizens whose financial ecosystem and system worsened as a result of the Indian Prime Minister Narendra Modi’s decision to demonetize the widely used 500 and 1,000 bank notes.
The removal of the two banknotes led to nationwide financial turmoil and instability. Hundreds of millions of citizens have struggled to obtain cash to fund day-to-day operations and purchase necessities. India’s financial system deteriorated further when the country’s ATMs began to run out of cash.
According to State Bank of India (SBI) deputy general manager Ajoy Kumar, more than 90 percent of ATMs in India have no cash to dispense, and around 70 percent of ATMs in three districts are out of cash.
“Nearly 70 per cent of our 648 ATMs in the three districts are out of cash. The rest will also become dry in the next few days as we do not have cash to refill the machines. We are helpless from our side,” said Kumar.
While the state-supported monetary system has declined and demonstrated a high level of incompetence over the past few months, the demand for bitcoin has been on the rise. Major bitcoin exchanges including Zebpay and Unocoin have experienced huge mid-term growth in their trading volumes and user base.
Sunny Ray, co-founder of Unocoin, wrote:
“It took two years and ten months for Unocoin to reach 100,000 users. It only took another six months to reach 200,000 users. Unocoin is on track to add the next 100,000 users in less than three months, averaging 1,000 new users a day.”
Local Indian bitcoin exchanges could experience an exponential growth rate in the near future if the government officially decides to provide practical regulatory frameworks for bitcoin exchanges and trading platforms.
An increasing number of unbanked citizens will most likely move toward a more efficient and transparent financial alternative in bitcoin if the government and the interdisciplinary committee fully regulate the Indian bitcoin market and offer clarity on the legality of bitcoin. The committee is due to submit a proposal between 15-20 May to the Ministry of Finance, who can then take the regulatory action.
In an exclusive report on April 20, CNBC India Bureau Chief Lakshman Roy stated:
“Virtual currency (what we refer to as Bitcoin) has no legal stance currently in this country. So, any transaction made with it has no legal stance. So, there is a high chance that this (legality) will happen. Which means, there will be relevant acts and laws about it. There will be regulations. There will be Reserve Bank of India (India’s central bank) guidelines for transactions and investments made with bitcoin. There will be a tax levied on investments. If you use Bitcoin to make international payments, then the FEMA (Foreign Exchange Management Act) will have laws that will affect remittances. And, whatever you get in return for any bitcoin investments will see a tax charge.”
Although local publications and researchers including CNBC India established their core discussion points on the taxing of bitcoin trading, the Indian government will likely follow the roadmaps of other Asian countries such as Japan to grow its bitcoin industry at a rapid rate. Taxing bitcoin trades and transactions will negatively affect the industry and decrease the activity of bitcoin traders.
The legalization of bitcoin and bitcoin trading is expected progress smoothly for both trading platforms and regulators because the country’s bitcoin exchange already have strict Anti-Money Laundering (AML) and Know Your Customer (KYC) systems in place.