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Tuesday, March 21, 2023

Are Indian investors safe if the government outlaws cryptocurrency? Here are some potential risks and scenarios.

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Cryptocurrency Ban: In recent years, cryptocurrencies have gained popularity as an alternative investment option for many investors worldwide. However, there has been much debate and uncertainty about cryptocurrencies’ legal status, particularly in India. While some countries have embraced cryptocurrency and even permitted its use as a form of payment, others, on the other hand, have taken a more cautious approach and banned or restricted their use. In India, the government has yet to issue a definitive statement on the legal status of cryptocurrency.

However, the Reserve Bank of India (RBI) issued a circular in April 2018 prohibiting regulated entities from dealing with or providing services to companies that deal with or settle virtual currencies. This effectively prohibits banks and other financial institutions from assisting with bitcoin transactions. Despite the ban, the use of cryptocurrencies in India has increased.

Many investors are finding that alternative investments are becoming increasingly popular. However, because the government is unsure of its stance on cryptocurrency, many investors are concerned: Will they be safe if the government decides to completely ban them?

In this blog post, we’ll look at the risks and scenarios that Indian investors might face if the government decides to outlaw cryptocurrency.

Potential Dangers for Indian Investors

1. Investment loss

If the government decides to ban cryptocurrency, the market could crash, causing investors to lose a significant portion of their investment. This has occurred in other countries where cryptocurrency is either prohibited or heavily regulated, such as China and South Korea according to some crypto tax softwares

2. Difficulty in selling assets

If cryptocurrency is prohibited, investors may find it difficult to sell their assets and liquidate their investments. There is currently no legal framework in place for trading or exchanging cryptocurrency.

Investors may be forced to rely on risky and unreliable underground markets or peer-to-peer exchanges.

If the government decides to outright ban cryptocurrency, those who continue to own or trade it may face legal consequences. Individuals have been arrested and charged with money laundering or other financial crimes in some countries for trading cryptocurrencies. While it is unclear what the legal consequences would be in India, investors may face similar risks.

Possibilities for Indian Investors

1. Cryptocurrencies are completely prohibited for Indian investors

If the government decides to completely ban cryptocurrency, the market may crash, and investors may lose a significant portion of their investment. Investors would also find it difficult to sell their assets and liquidate their investments because there would be no legal framework in place for trading or exchanging cryptocurrency. 

2. Cryptocurrencies are strictly governed.

Alternatively, the government could decide to heavily regulate the use of cryptocurrency rather than outright prohibit it. This may entail imposing stringent rules and regulations on cryptocurrency exchanges and trading, as well as taxing cryptocurrency transactions. While this is likely to cause some market uncertainty. It would also provide investors with a more stable and regulated environment. 

Finally, the government may decide to recognise cryptocurrency as a legitimate form of currency. This may entail developing a legal framework for purchasing, selling, and trading cryptocurrencies. In addition to potentially allowing them to be used as a form of payment, which is likely.

Binocs provides you with a comprehensive guide to managing your crypto assets, taxes on crypto gains, and tracking your crypto portfolio.

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