Experts fear that a 'ban' on crypto in India will only drive investors to the grey market

• India currently ranks second-highest in the world when it comes to crypto adoption, according to Chainalysis’ 2021 Global Crypto Adoption Index.
• With an estimated 15 to 20 million crypto investors in India, experts fear a ban on the industry would only drive these individuals to the grey market.
• Not only would that lead to an increased probability of money laundering but also loss of potential revenue for the government.

India’s decision to introduce its proposed regulation for the crypto industry next week has led to some fear, uncertainty, and doubt (FUD) in the market. While experts believe that a blanket ban on cryptocurrencies is unlikely, it is not impossible — albeit, not advisable.


While there is no official data on the number of crypto investors in the country, industry estimates suggest the number could be between 15 to 20 million. Albeit, the Reserve Bank of India’s (RBI) governor, Shaktikanta Das, believes more than 70% are small investors withholding of ₹1,000 to ₹3,000.

However, concerns remain that if cryptocurrencies aren’t regulated and protected, and banned instead, it will drive investors — both big and small — underground.

“Over the years, the use base of Indians holding or trading cryptocurrencies has increased exponentially, hence any blanket ban could lead to increase use of non-legal channel by people to invest in crypto and government losses on potential revenue,” lawyer Rajat Prakash, a managing partner at Athena Legal, told Business Insider.

Chinese investors, for instance, have reportedly flocked to the crypto ‘wild west’ after the country’s crackdown on all things crypto. According to a study published in September, local traders are still buying Bitcoin — only they’re doing it using the stablecoin Tether, rather than the Chinese yuan.

Banning cryptocurrency is technological challenge

Given the way blockchain technology functions, even if the government bans cryptocurrencies, the ban will be difficult to enforce. Transferring crypto from one wallet to another is a lot like sharing music using a pen drive. A ban may introduce a penalty but it’s unlikely to take away people’s ability to send crypto to each other.

“A ban is certainly possible, but enforcement of that could prove to be troublesome and difficult to enforce,” Athena Legal’s Siddharth Mahajan told Business Insider.

That being said, a ‘ban’ would still serve as a barrier to entry. Mainstream users won’t have access to local crypto exchanges, while others will look for a loophole — which brings the story back to the original result of black market trading.

“Banning cryptocurrency may only create a parallel economy, defeating the very purpose of the ban. Indian has a large crypto user base, banning cryptocurrency will leave the users to resort to illegitimate means of trading that may result in money laundering activities,” L. Badri Narayanan, an executive partner at the law firm Lakshmikumaran and Sridharan Attorneys, explained.

Despite all the fear, uncertainty, and doubt (FUD) in the market, many believe that India is unlikely to issue a blanket ban. Instead, the expectation is that more stringent guidelines around how cryptocurrencies will be classified based on their use cases.

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