India may be getting closer to legitimizing ‘private cryptocurrencies’, but investors allowed to trade them on foreign platforms are still a matter of speculation.

A cabinet note released by the government on the much-anticipated Cryptocurrency and Official Digital Currency Regulation Bill, 2021, suggested that crypto assets – as the legislation describes cryptocurrency – will be regulated by the Securities and Exchange Board of India (SEBI), NDTV reported yesterday (December 2) citing an anonymous source.

The note, according to NDTV, suggests that a deadline will be set for those who invest in crypto assets to declare their holdings and bring them under crypto exchanges. Since SEBI is the regulator of the Indian capital and securities market, it is likely that it will not allow investors to hold such assets on similar trading platforms outside of India.

It also means that cryptocurrencies will only be recognized as an asset class for investment and not as legal tender.

The bill is expected to be tabled during the current winter session of Parliament.

This development has thrilled Indian cryptocurrency stakeholders, although more clarity is eagerly awaited.

Any violation, according to the cabinet memo, will carry a jail term of up to one and a half years with a penalty in the range of Rs 5 crore ($ 667,500) to Rs 20 crore. In the event of terrorism-related activities, the provisions of the Money Laundering Prevention Act will apply with appropriate modifications, NDTV reported.

While there is no official data on cryptocurrency holders in India, industry estimates suggest that up to 20 million investors hold around Rs 40,000 crore in total.

Government concerns about cryptos

On November 30, during the winter session of Parliament, Finance Minister Nirmala Sitharaman pointed out the potential for fraudulent activity using digital tokens and said they were being watched.

Another concern is the emergence of products related to virtual tokens, similar to token funds, tiered marketing for direct sales, and systematic investment plans.

Responsible advertising must necessarily disclose the inherent risks, ensuring that people do not confuse crypto assets with legal tender, said Manisha Kapoor, secretary general of the Advertising Standards Council of India.

Sitharaman also said the government has no proposal to recognize bitcoin as a currency.

While the Reserve Bank of India’s digital currency is in the works, issues related to cryptocurrency will also fall under its purview. The government has reportedly received a proposal from the central bank to include them in the definition of a “banknote”.