Cryptocurrency ban: Will it happen?

The year 2021, was by far the most successful year for cryptocurrencies, metaverse, NFTs, etc. But behind the excitement lies a fear related to the ban of these assets in India. Investors are still worried about the fate of their crypto investments. The question that rises every now and then is will cryptocurrencies be banned in India?

The answer to this question in 4 words is, ‘we don’t know yet.’ As of January 2022, the government of India has not come up with any definitive framework that categorizes cryptocurrencies as an asset class. Neither there are specific regulations related to cryptocurrencies that dictate how to and how not to operate them.

Because of the lack of a regulation structure, cryptos lie in a Grey zone of regulation. The government is also attempting to implement a structure around the ecosystem to protect investors and at the same time stop illegal activities. As we have discussed earlier, it is bold text

Some facts to support this statement

1. The government realizes the potential of cryptocurrencies

The government knows the true power of blockchain and cryptocurrencies and are therefore creating their own cryptocurrency. This currency will be controlled and regulated by the Central Bank of India, (RBI) and will be called the ‘Central Bank Digital Currency.’

This cryptocurrency will exhibit the characteristics of a stable coin and will work like the fiat currency (Rupee) for daily transactions and deposits.

2. Total number of Cryptocurrency investors in India

The popularity of Cryptocurrencies as an asset class has exploded in the last couple of years in India. We currently house more than 10.7 crores cryptocurrency investors which is the largest in the entire world. According to a report of The Economic Times, the total estimated value of all the crypto investments of Indians is around $5.5 billion. Statistics also claim India is one of the fastest-growing crypto market, growing at a pace of** 641%** from July 2020 to June 2021.

With such stellar investor response and growth potential, the government will not ban all cryptocurrencies. However, the lawmakers and legislative members are working on a ‘Cryptocurrency and Regulation of Official Digital Currency Bill 2021’ to be made into an official law in 2022, in the upcoming budget session.

What will happen if Cryptocurrencies are banned?

Now that we have looked at the bright side of the picture, it is important to consider any adverse effects that might take place in the future. Going by the terms of the government, it can be said that some cryptocurrencies mostly ‘Private Cryptocurrencies’ could get banned after the law is enforced. Let’s look at what will happen to cryptocurrencies after they are banned.

First things first, let’s define Private cryptocurrencies before we dive deeper. The term private essentially means that these currencies are not transparent. This represents all the transactions performed on this network are kept private and cannot be accessed, unlike other cryptocurrencies. Some cryptocurrencies which have a private network are Monero, Dash, ZCash, etc.

Consequences of a cryptocurrency ban

If you hold any cryptocurrencies that are under than ban list of the government, here are the following outcomes that might happen.

1. Liquidity Issues

The biggest issue that you might face if your own the specific currency is that you will be unable to encash out of them. Exchanges, Institutions, and other platforms will either delist those coins or halt all transactions as soon as the coins are banned. This will result in you being stuck with your coins.

2. Monetary Penalties or Fines

According to the upcoming regulation bill on cryptocurrencies, there would be fines imposed on individuals or institutions as well as imprisonment up to a considerable time, if they are caught violating the regulation. Although this is not amended as a law, it is a basic framework on how the penalties would look, when under effect.

3. Halt on Mining & Trading activities

Once a cryptocurrency is banned, miners mining the token will have to halt all operations associated with it. Furthermore, all individuals will have to stop all trading activities once the ban is imposed.

Conclusion

These were some of the most critical outcomes if there is a ban imposed on cryptocurrencies. Though an absolute ban on every cryptocurrency seems unlikely but investing in any crypto token is extremely risky and speculative in nature. To make sure you are not affected considerably by upcoming regulations, it is best to limit your exposure to cryptos. Furthermore, if you are investing in cryptos, ensure the assets are on a public ledger like Bitcoin and Ethereum. So that even if private cryptocurrencies are banned in the future, you will have nothing to worry about.