Ever since the Reserve Bank of India announced the discontinuation of all cryptocurrency-related banking services from July, cryptocurrency traders in India have been having a difficult time. But is a cryptocurrency ban really possible?
RBI is the regulatory body which monitors the monetary policies of the country. However, it is not a legislative body. It can set regulatory directions for the institutions that are controlled by it but it has no power over other businesses or individuals.
What did the RBI really say?
Let’s understand what exactly the RBI said. The regulatory body issued a notice stating that they will withdraw support given to any virtual currency business. A quote from RBI’s issued statement reads,
“entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling virtual currencies. Regulated entities which already provide such services shall exit the relationship within a specified time.”
Nowhere in this directive is it mentioned that companies and institutions cannot trade in virtual currencies. Also, no definite deadline to make the exit was given in the notice but a later report by the news outlet Quartz India reported that it was 3 months.
The cryptocurrency exchange has just been made harder and not outlawed.
That is to say that India has neither banned nor expressed the desire to ban cryptocurrencies like Bitcoin, Ripple, Ethereum, and the like.
What RBI is going to do is to block banking institutions from getting involved in any cryptocurrency-related trading which is to say that the traders won’t be allowed to use their fiat money directly to trade in the cryptocurrency market. However, they still can opt for multi cryptocurrency transactions on other platforms.
It is difficult to say what is it that the RBI wants but there are some serious concerns that it might ban cryptocurrencies.
Why is the RBI against cryptocurrency?
India’s finance ministry criticised cryptocurrencies for the lack of intrinsic value. The department has not rendered it illegal but it seems that the government is scared of cryptocurrency touching the fiat currency and about money laundering and terrorism financing.
How might this move affect India?
Cryptocurrency traders are a bunch of curious enthusiasts who are unlikely to give up. If the RBI makes it harder, or impossible, for the citizens to trade in crypto within the country, the traders are most likely to invest in foreign crypto exchanges. There lies the risk of India losing millions, if not billions, of currency.
Is the country ready to afford something like that?
Can RBI truly ban cryptocurrencies?
Ideally, no. Because:
- The whole concept of cryptocurrency is decentralised. Moreover, crypto exchanges follow legitimate KYC procedures so there is no illegal activity at play here.
- Cryptocurrencies run on blockchain technologies which do not have a single IP address or server. So even if the government does succeed in blocking some cryptocurrencies servers, the users can always find new ways to access them. Basically, it will be like a replay of what happened when the country attempted to ban the torrent websites.
What do India’s cryptocurrency investors think of the move?
“There is a positive sentiment in the industry that the government will not ban trading in cryptocurrencies, and even if normal banking channels cannot be used, people can move to crypto-crypto trading platforms.”, said the CEO of BuyUcoin.
Some investors also hold the opinion that if anything, the regulation on banks to stay away from any crypto-related activity is a good thing because the basic idea behind cryptocurrencies was to liberate the financial operations from centralised banking regulations. Cryptocurrency does not want to be burdened by bank regulations in the first place.
In spite of the instructions passed down by RBI, the crypto market in India is booming by the day. More investments are coming in and the community is growing rapidly. This is owing to the fact they are getting good value right after the drop.
The price of BTC in India jumped back to 618,000 ₹ from 350,001 ₹ in early May.
The RBI has taken a tough stance against virtual currencies but many investors are hoping that the blow would be softened when the authority decided to regulate the cryptocurrency trade rather than banning it altogether.
In fact, pushing the virtual currency out of the formal banking system would prove to be counterproductive because in such a scenario the money would completely be out of view.
The best thing to do right now is to hold on to the crypto investments and take a ‘wait and watch’ approach. The criticism of the RBI’s move is bound to bring some modification which would definitely change the direction of India’s cryptocurrency market.
Hitesh Malviya is the Founder of ItsBlockchain. He is one of the most early adopters of blockchain & cryptocurrency enthusiast in India. After being into space for a few years, he started IBC in 2016 to help other early adopters learn about the technology.
Before IBC, Hitesh has founded 4 companies in the cyber security & IT space.
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