The Indian Cryptocurrency market has been seeing some interesting times of late. Apart from a surge in cryptocurrency-related scams, the Indian government seems to have had enough of cryptocurrencies in the nation. In April of this year, the Reserve Bank of India (RBI), had barred all RBI regulated bodies from having business relationships with any entities dealing with cryptocurrencies. It also gave them a period of three months to cease all dealings with cryptocurrency exchanges or else face disciplinary action. Of course, this was a detrimental blow to Indian cryptocurrency enthusiasts and exchanges alike. Some exchanges had challenged the RBI’s order in the Supreme Court.
India has joined the list of nations that have issued restrictions against digital currency use and trading within their borders. Major Cryptocurrency trading hubs such as China and South Korea took the same route way before India, China much more strictly. Prior to this RBI clampdown, Indians could trade cryptocurrencies without breaking the law. However, the Indian government had on several occasions voiced its cautionary stance on cryptocurrencies. It cited several reasons for its stance on cryptocurrencies, such as investor protection, money laundering activities, the anonymity of transactions, and digital currency’s lack of intrinsic value.
Current State of Cryptocurrencies in India
Following the decree from RBI that regulated bodies should cease all dealings with cryptocurrency-related businesses, a few banks such as Citi and HDFC along with credit card issuers have banned the use of their cards to purchase digital currencies. This move has made a few cryptocurrency players anxious and some are considering the move to crypto-safe havens such as Singapore or Dubai. Some cryptocurrency holders are considering leveraging loopholes in the system to continue trading or hodling. However, a majority of them are at a loss as to what their next step will be.
Now that the RBI’s crypto-ban is in full effect, a majority of investors who were trading cryptocurrency have moved to private crypto trading platforms (P2P based platforms). Others are considering moving to offshore countries for continuity in trading but this move certainly has its pros and limitations. Prior to the ban, the Indian crypto-market was fast approaching investor numbers of above 5 million with investments reaching a total net-worth of about $2 billion. Post-ban, the numbers have dwindled and the overall market is in a state of elevated concern.
Cryptocurrency Regulations in India
The state of India does not recognize cryptocurrencies as legal tenders. In fact, it is opposed to the idea of using them at all. The RBI favors the ban on cryptocurrencies, citing reasons such as cryptocurrency anonymity that hinders the ability to track sources of money. It also stated that its main goal was investor protection given the number of cryptocurrency related scams that have taken place in the state. RBI also put the case forth that cryptocurrencies can sabotage the FATF (Financial Action Task Force) and AML framework, thus negatively affecting market integrity and capital control. They also said that allowing an unregulated market to grow beyond a manageable size can jeopardize the state’s overall financial stability.
However, most cryptocurrency players argue that cryptocurrencies offer a safer system for their money. Through cryptocurrencies, investors get refuge from government interference and control, a safe-haven from inflation, and a rigid system free from political and economic turmoil (some of which may be questionable, such as being free from economic turmoil). Amidst all this, there are consultations going on behind the scene with stakeholders to create a detailed cryptocurrency guideline. This regulatory framework is expected to be presented to the public around September. The stakeholders involved include the RBI, the Securities and Exchange Board of India (SEBI), and the Internet and Mobile Association of India (IAMAI). While it hasn’t yet been confirmed how digital currency will be regulated, there are rumors that it could be treated as a commodity.
An Indian National Cryptocurrency?
Despite the RBI’s clampdown on cryptocurrency operations in the nation, RBI announced that they are looking at the possibility of introducing their own digital currency. They also gave the hint that the Indian government was unable to regulate the cryptocurrency market and therefore, opted for extreme action. RBI’s Deputy Governor B.P. Kanungo stated that “blockchain technology has the potential benefits for financial inclusion and enhancing the efficiency of the financial system.” He also stated that such kinds of technology “should be exploited for the benefit of the economy”. RBI has set up a panel that will study the feasibility of introducing a national digital currency and come up with a report.
RBI Versus Crypto-Exchanges
Crypto-exchanges have challenged the order given by RBI that all banks and financial institutions under RBI control should cease providing services to cryptocurrency companies. The crypto-companies challenged the ban on two grounds. The first one is under Article 19 (1) (g) of the Indian constitution that states that citizens have the right to enjoy and to carry out any occupation, trade, or business. The other is under Article 14 which hinders discrimination and advocates for equal protection under the law for all. The case was heard by the Chief Justice Dipak Misra, Justices A.M. Khanwilkar, and D.Y. Chandrachud. The attorney general was also in attendance.
In the case, RBI told the Supreme Court that allowing activities in digital currency would encourage illegal transactions which might impact the general flow of funds. They also stated that digital currencies such as Bitcoin could not be treated as currency as the law mandates that coins be made of metal or appear in physical form and stamped by the government. The RBI stated that it believed the best way was to regulate cryptocurrencies. The Supreme Court urged RBI to check representations by cryptocurrency platforms giving it a deadline of up to September 11 to respond to petitions. It also upheld the decision by RBI to ban cryptocurrencies.
Despite the cryptocurrency atmosphere in India at the moment, there is still a positive sentiment that the government will change its mind on cryptocurrencies. Most citizens are hoping that the Indian government will at least soften the RBI’s ban by regulating cryptocurrencies rather than outright banning them. Maintaining the same attitude of positivity, we encourage you to check out our gold inspired erc223 tokens – DinarCoins – that operate on the Ethereum platform.