India’s Crypto Investors Weigh Options Ahead Of Impending Ban

Investors are considering self-custody wallets as one way to secure their crypto holding ahead of an impending ban.

Bitcoins in an office in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)
Bitcoins in an office in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

The prospect of a fresh ban on cryptocurrencies in India has sent an army of crypto investors scrambling to think of ways to protect or liquidate their holdings. This, as the government appears to be in final stages of bringing in a new legislation governing Bitcoin and other such tokens in India.

On Thursday, BloombergQuint reported that India will go ahead with a complete ban on investment in cryptocurrencies via domestic and foreign exchanges, after giving investors a transition period of three-to-six months. The full contents of proposed cryptocurrency bill are not in public domain.

While there is no official data available, the three largest crypto-exchanges—WazirX, Unocoin and CoinDCX—claim that there are anywhere between 60 lakh to one crore cryptocurrency holders in the country with holdings of over Rs 10,000 crore.

These crypto investors are looking at options ranging from ‘self-custody wallets’ to transferring and selling their tokens. To be sure, provisions included in the upcoming legislation, once detailed, will eventually guide these choices.

Option 1: Move Towards ‘Self-Custody’ Wallets

One option being explored by crypto investors is to move their holdings into ‘self-custody’ wallets.

This means that investors could either store their digital wealth in a hard wallet, which is a small digital device like a USB drive, microSD card or a smart card. This device stores the investor’s private bitcoin key/s and can be locked away at a safe place or sent to a friend or relative. Some of the popular hardware wallets for storing bitcoins include Ledger, Trezor, SafePal and BitLox.

Further, there are online self-custody wallet services provided by global firms such as Blockchain, Electrum and MetaMask, among others.

Youtuber Aditya Singh, who runs a channel called ‘Crypto India’, told BloombergQuint that many cryptocurrency investors have reached out with queries on how they could stash their digital tokens away from cryptocurrency exchange wallets.

“There are multiple ways to do that (store cryptocurrency) but the easiest is to take the custody of your wallet,” said Singh. “Investors who are worried that it might be end of the road for cryptocurrency in India are shifting their virtual currencies from exchange custody to self-custody online or hardware wallets,” he said.

However, there is a caveat. If a cryptocurrency is transferred via a wallet that exists on an Indian exchange, authorities can track it down if they want.

“Even as the blockchain system is decentralised, the know-your-customer norms followed by the country’s exchanges require users to reveal their identity and that could be a way for authorities to trace it back to the person who holds cryptocurrency in the exchange’s wallet,” said Singh.

Option 2: Transfer To Friends/Family Overseas

The other option that cryptocurrency investors can also explore is transferring their crypto-tokens from their wallet to their family or friends living abroad, ahead of the impending ban.

"This should not be an issue as investors could easily transfer bitcoins from their wallet and send it as a gift to their friends or relatives to their wallets before the ban gets enforced," said Sathvik Vishwanath, co-founder and chief executive at cryptocurrency exchange Unocoin.

However, he said this could happen only if the Indian investor gives up the ownership of those bitcoins. Once the transfer happens, the receiver of those crypto currencies would become liable to pay tax on those assets in their home country.

But according to Anirudh Rastogi, the founder and managing partner at Ikigai Law, the ability to do this would depend on the provisions of the bill. "While the draft needs to be reviewed to get more clarity on whether this would be allowed, it is expected that Bitcoin investors will have to liquidate their holdings one way or another," Rastogi said.

Option 3: Sell And Exit

The third option is to simply sell and exit. There isn’t much evidence yet of any panic selling, though.

“Right now, panic selling is only among the relatively new crypto investors who began investing during the Bitcoin rally and have only done so speculatively,” said Vishal Gupta, co-founder of Bitcoin Alliance India, a non-profit organisation that educates people on cryptocurrency.

Vishwanath told BloombergQuint that even though there has been some increase in wallet withdrawals in February, the change is not significant.

“We have no way to determine how the end-user is storing their cryptocurrencies, but the increase in withdrawals has not been significant anyway,” he said. “Even all our banking relationships are intact as there is no way to find out the final outcome of the new bill yet,” he said.

WazirX Founder Nischal Shetty echoed that.

“Our investors are in for the long haul and we have not seen any big increase in wallet withdrawals, save a case or two." he said. "In case a ban is imposed, it will only result in an underground cryptocurrency market forcing genuine investors to function in an unregulated environment. That would serve nobody’s purpose."