The value of digital currencies has recently fallen by around 60% in India due to a massive sell-off and price movements, which has led to a sharp drop of around 80-90% on average in trading volumes on the major digital currency exchanges in April. A total of 20 million people in India held digital currencies worth $5.3 billion till February 2022.
On April 7, Coinbase launched its full-service trading operations in the country. A few hours later, the National Payments Council of India (NPCI) refused any exchange of digital currencies using its Unified Payments Interface (UPI) system. Next, Coinbase suspended UPI, followed by MobiKwik, CoinSwitch Kuber, CoinDCX, and WazirX also blocking deposits through UPI.
These stats offer insight into the implications of the Indian government’s announcement of digital currency regulations, which include a 30% tax on all digital currency earnings, 1% TDS (withholding tax) on digital currency investments worth more than INR 10,000 ($131). ), no offsetting of digital currency losses against realized profits, effective April 1. Residents of India, particularly investors and traders, have since reacted with a wide range of emotions – from relief and concern to anger and a state of confusion and uncertainty.
“People were mostly relieved because they probably felt good thinking the government hadn’t banned digital currencies outright, but reality is now setting in for merchants because the tax percentage reported on all assets Virtual Digital Devices (VDA) is quite strict.The Indian government will do everything in its power to tame the free VDA trading in India,” BlockReview founder Kumaraguru Ramanujam told CoinGeek.
Is Coinbase welcome in India?
Coinbase (NASDAQ: COIN) launched its trading operations on April 7, as CEO Brian Armstrong announced at a first event in India, where he mentioned that Coinbase has invested $150 million in Indian startups and will hire 1,000 people in 2022. A major investor in two leading digital currency exchanges in India, CoinSwitch Kuber and CoinDCX. Coinbase reportedly began testing UPI payments in March 2022.
However, NPCI claimed hours after the launch that it was “unaware” of any digital currency exchange using the UPI system. Things went south for Coinbase as the exchange later announced that it had disabled the purchase of digital currencies through UPI. It also halted rupee transfers to its trading app through UPI within three days.
Mobikwik, a digital wallet, followed suit by also stopping UPI payments. And then CoinSwitch Kuber, CoinDCX and WazirX. Nearly seven digital money changers have halted trading one after another in the country, causing a state of worry and desperation among digital currency enthusiasts.
“The Indian government will not let these high-risk companies operate as they wish; and rightly so. The reckless practice of digital currency trading is a surefire way to encourage money laundering in India and the government will take all possible measures to curb this,” said Kapil Jain of BSV Blockchain Association.
RBI vs Government
The Reserve Bank of India (RBI) has freely expressed its aversion to digital currencies on more than one occasion. Since digital currencies are created by people who buy them and who are completely outside the range of the Indian financial system, no benevolent authority will immediately like or support them. The RBI authorities have expressed their disapproval of anything”crypto”, adding that they will be happy if it is banned. The Indian government, on the other hand, is unwilling to ban it officially, or at least openly, perhaps because of the Supreme Court judgment of March 2020, which overturned RBI’s previous plan to ban the digital currencies in India.
When asked if the government was too conservative, Jain replied, “It had to happen. The government is always evaluating the facts and risks associated with digital currencies, and eventually they will become more receptive or closed off to this whole concept, especially blockchain technology.
“I hope the government can distinguish between currencies like BTC, ETH, etc., which are driven entirely by speculation, and Bitcoin SV which is rooted in scalable enterprise blockchain technology based on the original Bitcoin protocol,” he added.
The story of a trader
Trade is a game of speculation, but is the Indian government too hard on its people? Investors and traders suffer when they transfer their digital currencies to foreign wallets. They open accounts with platforms overseas, and for those who can’t, their money is blocked, and they don’t know when they can sell their digital currencies and at what price, or when to withdraw their money. There was an average drop of 80-90% in trading volumes on the best digital currency exchanges in April compared to a few months ago.
Investors who used to invest a lot of money in digital currencies have now taken a step back, according to a financial adviser in India who asked to remain anonymous.
“A lot of them have made profits and they’re sitting on it until more clarity emerges. Some big investors have started moving into Dubai and Singapore where the regulations are better than the one in India, especially when it comes to taxation,” the financial adviser told CoinGeek.
Is it a brain drain? The scenario certainly seems to be the case and a not so unfamiliar concept for India. The government must indeed assess the risks of digital currencies and protect its nation, but it is also crucial that it is regulated. The difficult position of RBI, in addition to an exorbitant tax rate on digital currency earnings in India, inevitably discourages traders from moving forward in the country. Banks have also joined the league, and people would be unable to use their money (sitting in their bank accounts) to buy digital currencies.
“Crypto is slowly dying in India,” the financial adviser added.
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