The Reserve Bank of India has been pushing for a crypto ban in India, while Finance Minister Nirmala Sitharaman has stated that any decision on a crypto ban will require “significant international collaboration.” What happens to investors’ money if crypto is banned?

Back in November 2021, headlines about a possible crypto ban in India were all over the internet, and the announcement left investors worried about losing their crypto investments.

The Reserve Bank of India (RBI) ignited the tinderbox by proposing that cryptocurrencies be prohibited in India, and that sentiment resurfaced after finance minister Nirmala Sitharaman informed parliament on July 19 that the RBI wants crypto prohibited.

To clarify the situation, the FM stated that no crypto ban would be implemented without “significant international collaboration.”

As speculative as the idea of a crypto ban in India is, many investors are concerned about what would happen to their money if a ban is imposed. What does this mean for Indian technology? Would an Indian ban have a significant impact on the global trading market?

To find answers to some of these pressing questions, we reached out to market research analysts and Indian crypto exchanges.

What does a prohibition imply for investors?

In 2018, the RBI prohibited banks from dealing with cryptocurrency exchanges, causing many people to flock to exchanges to sell their crypto. The investors were given 3-6 months to withdraw their funds. Many people who wanted to keep their crypto moved it to foreign exchanges where the laws were more crypto-friendly.

More recently, crypto has been making headlines for all the wrong reasons, including customers losing their investments as a result of major crypto hedge funds like 3 Arrows Capital capitulating and exchanges like Vauld suspending withdrawals due to unfavorable market conditions.

Surprisingly, India is one of the top three countries where cryptocurrency adoption has skyrocketed in recent months. According to a report by cryptocurrency exchange Gemini, over 54% of Indian respondents were first-time cryptocurrency investors in the previous year.

In retrospect, all of the talk about a crypto ban and investors losing money has forced many people to consider whether their investments are in jeopardy.

Though most crypto exchanges in India, such as CoinSwitch Kuber and WazirX, act as custodial wallets, facilitating the transfer of funds from Indian rupees to crypto and vice versa, these exchanges do not own your money and thus you have the right to withdraw your deposits whenever you want.

It is expected that in the event of a ban, investors will be able to withdraw their funds or transfer them to other physical wallets. However, at the end of the day, what the government says is final.

What will cryptocurrency exchanges do?

Until now, crypto has found refuge in countries where Bitcoin is accepted as legal tenders, such as El Salvador and the Central African Republic. Many other countries, including Portugal, Switzerland, and even Bermuda, do not tax cryptocurrency.

When things became difficult, crypto exchanges set out to find more conducive crypto-friendly economies. If strict regulations or a ban are imposed in India, these exchanges will be forced to relocate their operations outside of the country.

Firms such as ZebPay and Vauld have previously relocated to Singapore, where tax laws will not burn a hole in anyone’s crypto wallet. While India has an ambiguous stance on digital assets and regressive tax policies, there is concern that more crypto businesses in India may consider leaving to protect their investments. Many experts believe that if a ban is imposed, the majority of crypto trading in India will go underground, and crypto owners may resort to illegal means to buy and sell crypto.

What does this mean for the technological future of India?

Apart from exchanges, multiple cryptocurrency startups in India will be forced to seek more business-friendly environments to operate. This could not only result in the loss of a large talent pool of Web 3.0 and Blockchain developers, but it could also mean that India will miss out on advanced technological innovations that this sector has to offer and will offer in the future.

Historically, India has created favorable conditions for small and medium-sized businesses to thrive, which is one of the reasons why it is now a hub for unicorns that have spread their wings in international markets.

Cryptocurrency has enormous potential. According to a Nasscom and WazirX report, the global ‘CryptoTech’ industry is expected to be worth $2.3 billion by 2026, with global banks purchasing and integrating cryptocurrency into their financial ecosystem.

This industry is also expected to generate more than 800,000 jobs and generate $137 million in tax revenue by 2030. There is a lot to lose in the event of a ban unless a proactive approach to crypto is implemented in the coming years.