July 6, banks won’t allow payments for cryptocurrencies through their systems.
The Reserve Bank of India had asked them to stop providing services to firms and individuals who deal in bitcoins and other such virtual money. And exchanges got no relief from the Supreme Court. While a bench headed by Chief Justice Dipak Misra agreed to hear the petition by the Internet and Mobile Association of India on July 20, it said the RBI’s order will be implemented.
That virtually bans cryptocurrencies in India even though the government hasn’t legally barred them.
What Happens Now?
The RBI’s decision means that banks will no longer clear transactions to purchase or sell bitcoins through their payment systems. Exchanges that allow users to buy and sell virtual currencies through bank accounts will have to stop doing that.
People who hold bitcoins can choose to retain them but won’t be able to convert it into rupees or trade in the Indian currency. “Post July 5, there won’t be any fresh deposits or withdrawal on the platform,” Sathvik Vishwanath, co-founder and chief executive officer of crypto exchange Unocoin, told BloombergQuint over the phone.
Many crypto exchanges in India have been sending emails or uploading notifications on their websites to alert users they may soon be unable to encash their holdings, guiding them through steps to withdraw funds.
“We have informed our customers multiple times that whoever needs to withdraw their rupee deposits should do it before the deadline,” Ajeet Khurana, chief executive officer of Zebpay, that has about 15 lakh users on the platform, told BloombergQuint over the phone. “Some of them have taken their money out, and several haven't.”
Khurana declined to give the number of users who have withdrawn from the platform. Unocoin’s Vishwanath said about 20 percent of the overall rupee deposit has been withdrawn.
Both Unocoin and Zebpay admitted there has been a significant decrease in the number of new customers joining the crypto exchanges, given the uncertainty.
Exchanges Still Hopeful
Zebpay and Unocoin said the business will be temporarily hit until the final hearing in the Supreme Court. “We are waiting for the court’s decision on July 20,” Vishwanath said.
Khurana hopes the Finance Ministry will provide clarity. “The limited regulator (RBI) can do a limited action; the Ministry of Finance is the only one that has to take the view on cryptocurrencies,” he said. “Our expectation isn’t from anyone else, except the Finance Ministry.”
Peer-To-Peer Trade
Domestic exchanges like Koinex and WazirX are banking on peer-to-peer trade without using banking channels.
WazirX, in an emailed statement, said it will allow users to buy and sell crypto directly by making online payments outside its platform. It will act as an intermediary and will be connecting buyers and sellers. WazirX escrows the crypto for safekeeping during the transaction and releases the virtual money once the payment is confirmed.
Koinex too announced the launch of Loop peer-to-peer network from July. It offers a blockchain-based escrow to store bitcoins till the seller confirms payments.
There is nothing illegal to facilitate peer-to-peer transactions as the RBI has only asked banks to withdraw support from all the cryptocurrency exchanges, said Abhishek Rastogi, partner at law firm Khaitan & Co. “Outside the exchange, transactions can happen. It is legal.”
Moreover, both WazirX and Koinex said they only allow KYC-verified users for peer-to-peer trade and keep a record of each and every transaction.
But Unocoin and Zebpay, the two largest exchanges in India, are not optimistic about the peer-to-peer model though. “We are not in favour of the P2P model as it is fraught with risks,” said Khurana. “There is the issue of volatility and also there is also counterparty risk. People will buy bitcoins and will only pay when the prices go up.”
Cash Is King
Helsinki-based portal ‘Local Bitcoin’ already allows both online and cash payments for bitcoins in India, according to information on its website. The trading price for purchasing bitcoin via cash is higher than online payments on the website, hinting at the higher demand for cash settlement.
A founder of one of the crypto exchanges said requesting anonymity that several WhatsApp and Telegram groups are also facilitating peer-to-peer trades and the activity is on the rise.