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One could call this time period the ‘before times’. India had no rules governing cryptocurrency, nor did any other country, simply because crypto was not an economic force. It existed and drew the attention of developers in the wake of the Global Financial Crisis of 2008, but they were still exploring the then-esoteric technology and its use cases.
Soon enough, Bitcoin began trading on multiple cryptocurrency exchanges. Its value skyrocketed from between $5 to $100 to over $1000 — this was the first crypto boom. However, cryptocurrencies — especially Bitcoin — also got a reputation for being used for illicit activities.
Sellers on the darknet-based ‘Silk Road’ sold banned substances in exchange for Bitcoin and were eventually arrested by the US’ Federal Bureau of Investigation (FBI). Moreover, malware would infect computers and ask for Bitcoin payments in exchange.
At the time, India’s Reserve Bank (RBI) said it hadn't issued regulation as it was trying to ‘understand the subject’ and cautioned people about Bitcoin in December.
Indian crypto exchanges came online, including Unocoin, CoinSecure and ZebPay. There was a time when the outlets of Café Coffee Day were giving out Unocoin scratch cards, encouraging people to sign up and claim a fraction of Bitcoin for free.
Many more Indian crypto exchanges came online, playing a central role in introducing Indians to the wider world of Bitcoin and altcoins. They were still limited to buying and selling currencies while global exchanges began to add financial services such as leverage, for margin trading. The stablecoin Tether (USDT) and Ethereum (ETH) grew in usage too, setting the stage for Indians to benefit next year.
This golden year raised Bitcoin’s value by 20x – from under $1000 in January, to $19,497 in December. For retail Indian investors used to far lower rates of return, Bitcoin whetted their appetite for other forms of crypto as well. But, remember the lack of regulations thus far? That enabled usage of all money in the bank account, taking loans, and then maxing out credit card limits, to gain every last bit of profit from rising crypto. A dip in crypto value would mean not just a loss but large debts.
The RBI issued a press release in February, saying the value of ‘virtual currencies’ was driven by speculation. In October and November, two Public Interest Litigation (PIL) cases were filed in the Supreme Court, asking for a ban and regulation of cryptocurrencies in India. In December, a finance ministry statement likened virtual currencies to Ponzi schemes.
Cryptocurrency values, including Bitcoin fell by 50% or more, compared to their peak seen in 2017. In April, the RBI cut off the oxygen supply with a circular that effectively removed all formal banking systems support for any ‘virtual currency’ activity. Thus faced with being wipe out, Indian crypto exchanges filed a petition in the Supreme Court in May.
After looking into the issues of virtual currencies, a government inter-ministerial panel that was formed in 2017 submitted its report in July, recommending a ban on all "private cryptocurrencies". This was taken to mean that the government would still be open to a ‘digital rupee’, which would be a central bank digital currency (CBDC) of the type being explored by 87 nations.
The crypto sector got some relief, in a pandemic-hit year. In March, the Supreme Court said the RBI’s circular of 2018 was unconstitutional, thus allowing cryptocurrency trade to be supported by the financial system. Reasons cited include “cryptocurrencies are unregulated but not illegal in India”, and that the RBI was against virtual currencies “without any rational basis.” Speculation of new measures to ban crypto persisted, so most banks still had reservations on allowing NEFT,debit, and credit card transfers of money to exchanges. However, those who could send money through UPI or international accounts, hit the jackpot when crypto values rose in a year when people were stuck at home.
The year began well enough, with cryptocurrency values rising to dizzying heights. Speculations of a ban were quashed in May, when an RBI circular specifically said its own circular of 2018 was invalid as per the Supreme Court judgement of 2020, thus permitting banking services to the crypto industry. That was followed by major global crypto exchanges opening services to Indians. In July, the RBI’s Deputy Governor stated that he felt cryptocurrencies not controlled by a central authority have no “intrinsic value.” Looking ahead, the government expects to formally tax crypto gains in the Budget bill. The fear however, is because in November, a Parliamentary Committee met with crypto exchanges in consultation for a new crypto law, which is on Parliament’s agenda for next week.
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