In April this year, the Reserve Bank of India issued a notification prohibiting the use of virtual currencies, preventing entities regulated by the RBI from dealing with virtual currencies or providing services facilitating any person or entity to deal or settle virtual currencies.
Pursuant to the Notification, entities were prohibited from maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts on exchanges dealing with virtual currencies and transferring or receiving money in accounts relating to the purchase or sale of virtual currencies. RBI regulated entities, providing any of the above-mentioned services were given three months to exit their commercial relationships.
On May 22, 2018, the Internet and Mobile Association of India (the “IAMAI“), an industry body representing the interests of online and mobile value-added service providers filed a writ petition in the Supreme Court of India demanding a stay on the Notification.
Noting the urgency of the matters raised in the Petition, the Court posted the hearing for the matter on July 3, 2018 and passed an order thereafter.
Trading in cryptocurrency was never considered as a reliable source of investing by RBI, but the latest guidelines have now brought a complete restriction on all the banking services that were earlier backing the crypto exchanges. Rachit Chawla, CEO of Finway Capital said,
“The volumes of cryptocurrency trading primarily of bitcoins have slumped down post July 6 (an effective date of this regulation from RBI) to a great extent and won’t be revived any sooner.”
On the other hand, Ashish Singhal, Co-Founder & CEO of an exchange aggregator platform CoinSwitch.Co added,
“Execution of RBI guidelines are one of the major factors that led short-term investors to liquidate their cryptocurrencies before 6th July, while the long-term investors are still holding on their virtual currencies.”
Alternatives
Kumar Gaurav, Founder and CEO of Cashaa has a firm belied that over some months traders will be switching to Peer to Peer (P2P) exchanges, trading platforms like Localbitcoins and National Multi Crypto Currency Exchange (NMCCX) which facilitates trading in cryptocurrency.
So if you want to invest in cryptos and trade them, then P2P approach looks like the best option.To service such customers Wazirx, Koinex, etc has recently launched P2P trading platform as they are not abide by RBI directive at present. These platforms allow any individual to enter and exit crypto when they want.
Nischal Shetty, Founder and CEO of WazirX said,
“With the RBI ban on banks dealing with crypto exchanges, one of the biggest fear people have is, how will they convert their crypto to INR and vice versa.”
Risks and drawbacks of P2P platforms
For now, the P2P model looks like the most suitable option, keeping in mind the ongoing scenario of cryptocurrency investment in India. However, even this alternative is not completely immune or faultless.
Also, there are probabilities RBI and ruling government discourage this alternate options of trading in virtual currencies which are threat to the country and considered barred.
Singhal explained,
“For instance, even if a seller receives direct funds from the buyer in their bank accounts, they still would have to justify or explain these funds during audits or tax returns. Since engaging in cryptocurrency has been discouraged, the same could lead to complexities. Furthermore, even in the P2P mode liquidity would be less and wouldn’t go as smoothly as before.”
To confirm, Chawla added,
“The absence of information about the dealing parties even in the P2P anonymous systems could subject the users to unintentional money laundering. This trade options only position you in the market and doesn’t guarantee the completion of trade at a given time schedule.”
While Kumar Gaurav said,
“Lastly, there is a risk of leakage of information during the transaction as there is an involvement of a third party that facilitates the deal between the buyers and sellers,”
Chawla said,
“In case of any fraud/dispute, an investor can’t seek the legal help and has to bear the brunt of losses solely. So, beyond risks, investment in cryptocurrency is a sheer gamble and people should understand that the repercussions of any scam will be unmanageable. It is better to stop trading in cryptocurrency as soon as possible, otherwise losing all of the money is too easy for you.”
Outlook of Investment in Cryptos
India has not been perfectly cohesive in its stance toward crypto. The relationship between the two dates back to December 2013, when the RBI first issued a general public announcement to potential crypto users, warning them about typical risks involved — volatility, security and ties to illicit activities. Since then, the agency has been putting out similar notes in response to crypto’s gaining popularity, with the last one being issued on December 2017.
Also Read: Money Control)
bestadmin
