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How India’s Potential Cryptocurrency Regulations Could Impact Adoption

Reports have surfaced that the Indian government is likely to take regulatory action to hinder the use of cryptocurrencies by its citizens. And, if true, this contradicts earlier indications that India might officially endorse the use of bitcoin and other cryptocurrencies for everyday transactions.

So how did the nation arrive at this negative outlook? And what could it mean for the larger cryptocurrency landscape if one of the world’s biggest emerging markets faces regulations that discourage use?

Backstory: Crypto in India

By some key measures, India is an important proving ground for cryptocurrency. The country ranks as a close second behind China on the list of the world’s most populous nations. That means that India’s policies on cryptocurrency stand to exert a large influence over global rates of crypto adoption and usage.

In addition, India has a high number of unbanked citizens. In that respect, the country would seem to be a prime place for testing one of the most frequently cited arguments in favor of cryptocurrency: the idea that it provides access to sophisticated financial tools for people who cannot obtain similar services from traditional financial institutions.

For some time, it appeared that the world would get to see what happened if India’s population had unfettered access to cryptocurrency. Last fall, the country’s supreme court sought advice that would potentially have helped it to intervene against efforts by India’s central bank to discourage the use of cryptocurrency. Although the court did not end up intervening on this front, a number of large Indian companies reported using cryptocurrency for internal finance operations as of early this year.

India’s Anti-Crypto Bent

The latest crypto news from India suggests that those hoping to see crypto markets expand in the country have reason to be pessimistic.

According to Quartz India, a government panel created in November 2017 to study cryptocurrency is nearing the completion of its work and has warned that official endorsement of bitcoin and other cryptocurrencies in India could destabilize the country’s fiat currency, the rupee.

Quartz reported that the panel is working on draft regulations for cryptocurrency in the country. For now, however, it’s unclear when those regulations might be presented for adoption as laws and how they would impact crypto transactions.

India’s Crypto Future Remains Uncertain

While the reports about the panel’s operations come as a setback for crypto advocates, they shouldn’t be interpreted as a definitive ruling against crypto in the country.

The language reportedly used by panel members to describe their findings is measured and balanced. Quartz’s report doesn’t indicate a total unwillingness by government regulators to endorse crypto; instead, it says that it is “still unclear” how official support for crypto could impact the Indian rupee and economy, in the words of one anonymous member of the panel.

Thus, it’s too early to say to what extent the Indian government might regulate the use of cryptocurrency. And there is no reason to assume that it will ban cryptocurrency altogether.

Nonetheless, investors and crypto enthusiasts tend to view any sign of regulation as bad news. That is perhaps because the crypto industry has operated with almost total free reign for the past decade, with few bans or other strict regulations imposed by most governments.

Expecting that regulation-free ride to continue forever is unrealistic. Signs that the government of India (or, for that matter, governments like those in the United States and Switzerland) are taking steps to regulate crypto should not be read as a death sentence for cryptocurrency. They’re simply a reflection of the fact that crypto has become an enduring niche within the global economy and that governments are taking natural steps to understand and regulate its use.

So, yes, the Indian government may soon set some limits on what its citizens can and can’t do with cryptocurrency inside India’s borders. But there’s no particular reason to think India will outright ban crypto (or that it could really keep citizens from adopting it if it did). Basic regulation for the crypto markets does not have to be a worrisome development.

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