Regulators in India directed on April 6th that all lenders should close down all accounts of cryptocurrency exchangers and traders. They were to also wind up their relationship with them within a three month period.
Reasons for the ban
The reserve bank of India stated that even though there haven’t been risks that have been reported in regards to cryptocurrency, its increase in popularity that has led to price bubble, like for instance the loss of nearly 200billion in Bitcoin that happened from the peak of December 2017. This is a major concern, hence the need to protect its consumers and investors.
Another reason for the ban, as stated on the report was the fact that cryptocurrency do not have intrinsic value, as they are not backed up by assets. There is also the fear that if the cryptocurrency trading are not monitored, it will lead to increase in cash usage due to peer-to-peer mode of transaction. This may cause shift of crypto exchange to dark pools/cash and offshore locations, raising concerns on AML/CFT (anti-money laundering/combating the financing of terrorism) and also taxation issues.
Praveen Kumar, the chairman and CEO of Belfrics, a Malaysia-based exchange with operations in India, fails to understand why the ban was implemented, yet the exchanges were following all the procedures of know-your-customer and enforcing only bank related transfers. This would have aided to keep track of all money trails he added.
So far, so bad
As reported by Quarts India, RBI states its fears on the difficulty they have faced on regulating cryptocurrency market after the ban was imposed. This was reported on part of its yearly report that was published on August 29, 2018.
Effect of the ban
To circumvent the ban, cryptocurrency traders and operators have shifted their way of operation to peer-to-peer trade and crypto-to-crypto business model in order to eliminate the use of bank accounts. Peer-to-peer trade is a direct exchange between a buyer and a seller while crypto-to-crypto transactions are transactions that allow traders to buy units in one digital currency for an agreed rate. Some of the crypto exchangers have even opted to relocate their offices to other countries that are crypto-friendly.
Many platforms have resulted to different measures to deal with the ban. Some have taken measures to prevent the ban from interfering with their operations, while others have formed a coalition and on July 20th submitted a case before the Supreme Court to contest the legality of RBI’s pronouncement. The case was adjourned until September 11, 2018, when the final verdict will be issued.
As exchangers and crypto traders await the ruling, they feel this situation would have been regulated, by taking steps to understand the ecosystem, instead of shutting it down completely.