Crypto retains its popularity in India

The Indian government has long eyed cryptocurrencies warily, viewing them largely as contributing to money-laundering risk and challenging the central bank’s monetary authority. Though India has stopped short of outright banning digital assets – or a de facto ban like what China has – it has nonetheless made investing in them smoothly a challenging process – especially the 30% tax on gains from cryptocurrency. Nevertheless, crypto remains popular among with Indians, with a recent Chainalysis study showing that India leads the world in crypto adoption.

Chainalysis reckons that India remains on a path to adopting cryptocurrency, as it sees more lucid engagement between the industry and regulators. To support this viewpoint, the research firm notes that India’s Financial Intelligence Unit (FIU) recently lifted a seven-month long block of Binance after the giant exchange registered as a reporting entity. Binance is now allowed to re-enter the Indian market.

It will be interesting to see how the return of Binance to India affects the broader market for digital assets in the subcontinent. It seems that the exchange is working hard to address regulatory concerns. For instance, it plans to lead the creation of a Financial Crimes Compliance unit that will support law enforcement in the investigation of crypto related malfeasance. At the same time, given Binance’s clout in the digital assets sector, its return to India could boost market confidence and lead to greater competition and even an improved user experience.  

Yet, the Indian government also wants Binance to pay a US$86 million tax bill – not a small sum, even for a firm the size of Binance. The company is challenging the payment order. This may not sit well with regulators.

Additionally, it is unclear how much support there is among key lawmakers and regulators for cryptocurrency in India. The Reserve Bank of India (RBI) seems ambivalent at best, while other regulators are more supportive. As Reuters noted in May, “the position of the Securities and Exchange Board of India (SEBI) contrasts with that of the Reserve Bank of India (RBI), which maintains that private digital currencies represent a macroeconomic risk.” The RBI favors a ban on stablecoins – not exactly a vote of confidence in digital assets given the former are supposed to be a less volatile form of cryptocurrency.

It is hard to see a clear way forward for digital assets in India without the central bank onboard, regardless of their popularity among retail investors.