India’s cryptocurrency businesses are eager to see the restrictions on cryptocurrencies lifted in an apex court ruling – but many are anticipating strict regulation for the sector in the coming months.
In a March 5 ruling, the Supreme Court of India decided that a 2018 Reserve Bank of India (RBI) circular that banned banks from dealing with any cryptocurrency businesses is unconstitutional and imposes disproportionate restrictions. The RBI has 30 days from the date of the ruling to file a review petition.
The 2018 circular resulted in a shutdown of cryptocurrency services in the country, but sources say that many will return to the market with this ruling.
Kunal Barchha, founder at cryptocurrency exchange CoinRecoil said: “We are a startup actively looking for funding to achieve the growth we are seeking. The last two years of legal uncertainty made a lot of investors pass on our offer, but now we are very optimistic about getting in touch with angel investors and obtaining funding.”
He continued: “The sentiment has changed completely in the last couple of weeks. Investors are approaching us, rather than us pitching them. Things are becoming more positive.”
Tashish RaiSinghani, a blockchain and cryptocurrency consultant said: “The established trading exchanges will now be freely operational. A large number of people had continued trading even with the prevailing ban, and they will now be trading in a legitimate manner, freed from scams.”
Although the RBI is unlikely to impose an outright ban, as proposed by its draft bill in 2019, strict regulations on the burgeoning sector can be expected soon.
Vinod Kashyap, co-founder at accounting and audit firm NextGen Knowledge Solutions Private, said that comprehensive legislation to regulate cryptocurrency in India is needed as investment in exchanges and crypto companies increases. There are currently no standards on accounting, financial reporting, taxation or auditing of cryptocurrency businesses.
Rashmi Deshpande, partner at Khaitan & Co, said: “It’ll be interesting to see the grounds on which the RBI might petition the court decision. But as this is a ruling made by India’s highest court, the decision is unlikely to be reversed.”
She said that the ruling has created a positive atmosphere for cryptocurrency businesses, and that strict restrictions like the 2018 circular are unlikely to be introduced. However, she expects regulatory developments to move fairly quickly going forward.
“The judgment is open-ended as there is no discussion regarding the legality of virtual cryptoassets,” said Amrit Subhadarsi, assistant professor at Kalinga Institute of Industrial Technology. “Permitting the holder of rights to have the fundamental right to freedom of profession without lack of clarity on the object of right itself could be a body blow to India’s nascent cryptoasset industry, as there is always regulatory room to transcend the judicial precedent.”
Barchha said that if regulations do come in, they are likely to be tough. He expects high capital requirements, strict anti-money laundering (AML) policies, and compliance reports to be filed regularly with different authorities.
“If a capital clause is introduced, similar to the one required for getting a stockbroker licence, then it will likely kill budding startups in the crypto industry,” said Barchha. “Startups usually have very limited funds and a lot to achieve. This will serve as a major roadblock.”
However, he added that strict AML and other compliance rules will help the industry by introducing accountability for everyone. Additionally, with proper regulations in place, crypto businesses can avail other facilities like insurance and seamless banking services.
Sumit Gupta, co-founder and CEO at cryptocurrency exchange CoinDCX, said: “We would welcome some clarity on taxation as well as how to deal with cybercrimes, which are small in number but can have a significant impact on an economy as young as ours.”
RaiSinghani said that in addition to strict AML guidelines, there should be stringent background checks on the promoters of cryptocurrency firms to ensure transparency of fund flow, IT security compliance requirements, and the creation of an autonomous regulatory authority to create and ensure best practices in the industry.