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Bahrain Pressure Could Legalize Crypto Market in India

In 2018, the Reserve Bank of India barred local banks from dealing with crypto businesses such as Bitcoin exchanges. Consequently, Bitcoin dealers and investors in India lost access to fiat-enabled exchanges and have been using peer-to-peer transfers to convert cryptocurrencies, which can be unsafe and impractical.

However, the pressure from other market competitors could make the government of India rethink its strategy. The prime example of that being Bahrain, who is trying to lure disgruntled Indian crypto companies towards its crypto friendly commercial landscape, possibly spiriting away investment worth billions of dollars out of India.

On 3 March, The Economic Times reported about the government of Bahrain and its invitation to Indian cryptocurrency companies to relocate to a country which has been moving swiftly to establish itself as a fintech hub. This includes initiatives like the Bahrain Economic Development Board (EDB) offering crypto businesses a wider range of resources such as a practical regulatory framework as well as proper banking solutions to support growth and innovation.

Bahrain completed its regulatory draft specifically for cryptocurrencies two months ago and has now finally finished the legislation. Also, the Central Bank of Bahrain (CBB) has also created the right ecosystem to harbor crypto growth and innovation. CBB has ratified new regulations supporting open banking, simplified crypto asset trade regulation, drafted a regulation on robo advisory, and streamlined remittance collection to enhance the expansion of its financial service sector, which constitutes a large portion of the country’s GDP.

This aggressive move by Bahrain will undoubtedly make India revisit its crypto policy of imposing a blanket ban on all cryptocurrency transactions. This is a similar phenomenon that led to a previously crypto skeptic country, South Korea, loosening its crypto policies after investors were threatened by markets in Japan, Singapore, and Hong Kong.


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India may Implement Crypto Token Specifically for Financial Transactions

The finance ministry of India is taking an interesting approach to digital tokens despite having a ban on cryptocurrencies; a new committee is examining the possibility of setting up a legitimized crypto token payment system.

A crypto token, not a cryptocurrency

Local news outlet DNA India reported that the new committee was also established under the chairmanship of the Department of Economic Affairs (DEA) secretary Subhash Chandra Garg. He said, “The committee is studying the possibility of using cryptocurrencies or the crypto technology (distributed ledger technology) for financial transactions and also what kind of regulations are needed for that.”

The crypto tokens in question are a representation of money, which differs to the standard cryptocurrencies as they are treated as money equivalents; instead, these tokens will be utilized exclusively as a means for financial transactions in India.

President of the Digital Lenders Association of India (DLAI) said that in order to obtain these crypto tokens, people will have to pay physical money for them which removes any impacts on the country’s monetary policy.

Once purchased, tokens could be stored on mobile phone devices and potentially used as remittances. According to DNA India, a senior official at the ministry also said that the crypto token could “replace smart cards such as metro cards in the public sector to start with. Similarly, in the private sector, it can be used in loyalty programmes such as air miles where its use is limited to buying the next ticket and can’t be converted into money”.

This approach is rather specific in its application, though it does offer a view for crypto-positive future in India; however, according to DNA India sources, the official cryptocurrency ban is “likely to continue”.

Clarity needed

On 5 July 2018, India officially enacted a banking ban on cryptocurrency; it’s not an outright blanket ban like China’s but instead prevents practically all fiat to crypto trading, a move that for the most part affected exchanges.

Exchanges are allowed to continue operations as long as they remove all fiat trading pairs, limiting their platforms options to crypto-to-crypto trades, much like the exchanges in China were forced to do.

Interestingly, later that month, the law reform committee of India made recommendations for cryptocurrencies to be accepted as payment for online gambling and sports betting.

The legality of cryptocurrencies in India is a hotly discussed topic; blockchain related technologies in the country are receiving public and institutional support especially with regards to the workforce, with whom there is a growing sense of urgency for regulatory clarification.

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