Computer programmer Tushar is a self-described cryptocurrency noob. For years, he watched his colleagues make enormous returns investing in cryptocurrencies but refrained from investing himself because of its legal ambiguity in India. But in February — when Bitcoin staged an epic rally — Tushar, in his mid-thirties, took the plunge into cryptocurrency investing as a long-term strategy to increase his savings. He had plans for a second child and buying a new apartment for his family with his earnings. 

Those dreams ended last week, when reports of a draft cryptocurrency policy from the Indian government revealed the authorities were considering criminalizing anyone holding or trading cryptocurrency assets. The policy currently in draft form, and it’s unclear whether it will be implemented as law. Still, it’s causing alarm for members of India’s cryptocurrency community.

“[I] was thinking of [it as] long-term investments. But now I think I have to pull out everything,” said Tushar, who asked to be identified only by his first name because of his soon-to-be potentially illegal cryptocurrency holdings. The fear of a cryptocurrency crackdown has prompted him to liquidate 30% of his personal holdings (most of them in a currency called Ripple), and he’s preparing to sell the rest by the end of March. “I had created an account for my retired father just last week,” he said. “[I will] have to pull out from there too. Don’t want to get him in trouble.” 

The Indian government is considering one of the world’s strictest bans on cryptocurrency, and investors of all stripes are bracing for its potential consequences. Novice traders and investors like Tushar, many of whom bought cryptocurrency during the pandemic, are backing away from their investments out of fear of repercussion from the authorities. Seasoned traders, however, say they’ll move their coins to hardware wallets if a ban goes into effect, physical devices like USB drives that make their holdings difficult to trace. And professional traders, with cryptocurrency investments running into several millions, are considering moving to countries friendlier to their trade, like Dubai and Singapore. 

On Monday, a Reuters report, quoting an anonymous government official, said a new bill “would criminalize possession, issuance, mining, trading and transferring crypto-assets.” Cryptocurrency holders, the report said, would be given up to six months to liquidate their holdings, after which they would be fined. If the current bill becomes law, India would be the first major economy to enact a strict ban on owning cryptocurrencies.

Industry experts estimate there are currently 10 million Indians who have invested about $2 billion in the crypto market, and transaction volumes on Indian exchanges have soared in the past few months.

This isn’t India’s first proposed crackdown on cryptocurrency trading. The first strict measures against trading came in 2018, when the government restricted the accounts of known cryptocurrency traders, a measure that was lifted in March 2020. In 2019, the government drafted a bill that proposed a 10- year jail term for cryptocurrency holders but never passed it into a law. In January, the government tabled a proposal that aimed to create a framework for an official digital rupee, a government-backed coin that would aim to replace private currencies by banning them in India. 

The harsh precedent in April 2018 sent shockwaves through the ecosystem. Exchanges shut down, founders were arrested, and a brief market crash resulted. But the Indian cryptocurrency community, mostly individual traders and entrepreneurs, fought the restriction, which was ultimately overturned in the Supreme Court in March 2020. Since then, there’s been an influx of young cryptocurrency traders; WazirX, currently India’s largest exchange, doubled its number of registered users to over a million accounts since June 2020. 

For over three years, 26-year-old Keshav, who also asked to be identified only by his first name, has been a part-time trader. He operates a WhatsApp group, “Bitcoin Investor Family,” to share tips with his friends and others in the community. He says seasoned investors have a well-established offline network for trading cryptocurrency with cash and aren’t bothered about online exchanges getting banned. “We have [enough] networks [that] we can do trading outside the [banking] systems,” said Keshav. “We know how to move the funds.” 

If the proposed ban goes into effect, Keshav says many like him would switch to websites like LocalBitcoins, a community platform for offline meetings, and trade bitcoins in cash. Keshav says, because of the underlying technology of cryptocurrency, the government knows it can’t effectively ban currencies outright and that people like him are committed to continued trading. He already routinely moves a portion of his cryptocurrency to a hardware wallet for safekeeping. 

“There are solutions, and these solutions have been brought about in so many other countries. India does not have to invent the wheel.”

Others are in favor of some sort of government regulation. Ajeet Khurana, former chief of India’s earliest crypto exchange, ZebPay, has been a strong advocate for them. He says the government’s unfavorable stance toward cryptocurrency is rooted in three concerns: fear that cryptocurrency could undermine India’s fiat currency, fear that cryptocurrency trading could result in a system the government can’t regulate and can’t tax, and fear that cryptocurrencies could aid terrorist and black market networks. In addition, the government is also concerned about protecting ill-informed consumers from falling for bitcoin ponzi schemes. While these concerns are valid, “there are solutions, and these solutions have been brought about in so many other countries,” said Khurana. “India does not have to invent the wheel.”

One young Delhi-based cryptocurrency trader who spoke to Rest of World (and also asked to remain anonymous due to the changing regulations) trades up to $4 million a day in cryptocurrencies. After the 2018 ban, his money was stuck in an Indian exchange for months, so this time around, the large-volume trader started moving his operations outside of India, as news of possible legislation trickled in earlier this year. “I opened an entity in the U.K., Singapore, Indonesia, and Malaysia,” he said. “Over there, everything is regulated.” Entrepreneurs who have built their businesses around cryptocurrencies are also leaving India for countries like Singapore, Dubai, and Estonia, in what some are labeling a brain drain in the industry. Khurana, who bet big on cryptocurrencies with his exchange, says it’s always a good idea for Indians working with cryptocurrencies to move overseas, but, “Now you have a gun to your head.”

India isn’t the only large economy to face confusing and sometimes contradictory cryptocurrency regulations. In Nigeria, recent panic over restrictions on trading forced the central bank to issue a five-page press release clarifying its position. In China, the state prohibits trading where cryptocurrency is being treated as legal tender. 

While this isn’t the first proposed ban on cryptocurrencies in India, it’s the mixed messaging from authorities that has traders confused about how to react to a potential crackdown. The day before the news of the possible ban was reported last week, India’s finance minister, Nirmala Sitharaman, implied authorities wouldn’t enforce a blanket ban, allowing “certain experiments” in the industry. “We’re not shutting off all options,” she told a reporter.

For novice traders who entered the market legally, like Tushar, the uncertainty has left them nervous and afraid. “There is no clarity on what is allowed and what is not,” he lamented. “What is their endgame?”