The government’s plans to crack down heavily on cryptocurrency trading sparked a frenzy in the market and several investors exited with significant losses.
New Delhi:
Proposed legislation that would ban the use of cryptocurrencies as a method of payment in India also seeks to make those who infringe the law subject to arrest without a warrant and being held without bail, according to a source and a summary of the bill seen by Reuters.
Prime Minister Narendra Modi’s government has previously flagged that it plans to ban most cryptocurrencies – a move which follows measures by China this September that intensified its crackdown on cryptocurrencies.
According the summary of the bill, the Indian government is planning a “general prohibition on all activities by any individual on mining, generating, holding, selling, (or) dealing” in digital currencies as a “medium of exchange, store of value and a unit of account”.
Flouting any of these rules would also be “cognizable” which means an arrest without a warrant is possible, and “non bailable,” it said.
The government will probably give crypto holders a deadline to declare their assets and meet any new rules, the people said, asking not to be identified as the discussions are private.
The bill is likely to use the term ‘cryptoassets’ rather than ‘cryptocurrencies,’ and won’t refer to the central bank’s plan to create its own digital currency, one of the people said.
Any violators could be fined as much as Rs 20 crore ($2.7 million) or imprisoned for 1.5 years, according to the proposals, the people said.
The government may also consider prescribing a minimum threshold for investing in crypto assets to safeguard small investors, Bloomberg News had reported earlier.
India is considering appointing its capital markets regulator Sebi to oversee cryptocurrencies, according to people with knowledge of the matter, as authorities look to classify them as financial assets.
The source, who has direct knowledge of the matter, was not authorised to speak to media and declined to be identified. The finance ministry did not respond to an email seeking comment.
Although the government has previously said it aims to to promote blockchain technology, the proposed law will also deal a blow to its use as well as to the non-fungible token market in India, lawyers said.
“If no payments are allowed at all and an exception is not made for transaction fee then it will also effectively stop blockchain development and NFT,” said Anirudh Rastogi, founder of law firm Ikigai Law.
The government’s plans to crack down heavily on cryptocurrency trading sparked a frenzy in the market and several investors exited with significant losses.
Lured by a barrage of advertisements and rising prices for cryptocurrencies, the number of investors in crypto assets has surged in India.
The government now plans to also come down heavily on advertisements that seek to woo new investors, according to the draft summary of the bill and the source.
Self-custodial wallets that allow people to store digital currencies outside exchanges are also likely to be banned, the source added.
The tough new regulations stem from the central bank’s grave concerns about digital currencies and aim to put in safeguards to ring-fence the traditional financial sector from cryptocurrencies, the draft summary of the bill said.
While no official data is available, industry estimates suggest there are some 15 million to 20 million crypto investors in the country, with total crypto holdings of roughly Rs 45,000 crore ($6 billion).
The crypto market in India has grown 641% in the year through June 2021, according to an October report from Chainalysis, a crypto-analysis firm. The government is now considering taxing gains from digital currencies, and there have been calls to impose stricter rules for transactions in virtual coins due to the unregulated nature of the business.