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Indian banking law is slow to accept the cryptocurrency industry despite RBI approval

June 27, 2020

The removal of a blanket ban on cryptocurrencies by the Indian central bank, the Reserve Bank of India, in March was a great help to the burgeoning cryptocurrency industry in India and the introduction of new cryptocurrencies. The exchange was a catalyst.

This is despite the fact that the country is one of the countries most affected by the COVID 19 pandemic, which has led to a deep economic crisis across the country. For fintech investors and innovators, cryptocurrency and blockchain technology have proven to be a much-needed respite in these difficult times.

Regulatory uncertainty

The lifting of the total ban was not the final solution that was most expected, even after the lifting There have been incidents of banks refusing to process cryptocurrency related transactions. However, there is now more regulatory clarity in the industry than in 2017, when the level of skepticism and confusion was very high.

Indian banking law is slow to accept the cryptocurrency industry despite RBI approvalIndian banking law is slow to accept the cryptocurrency industry despite RBI approval

A rumor about a note filed within the Treasury Department for an internal departmental consultation on a bill to ban all cryptocurrency-related activities, with a large fine or even a prison sentence of up to 10 years for offenders, has been hanging around but has recently been discredited. Management consultancy AKM Global said that if the law was passed in its current form, it would “completely decimate the crypto industry in India”. This rumor brought back fears to the crypto community. However, Nischal Shetty, the CEO of the WazirX crypto exchange, still believes in the government and tells Cointelegraph in an email exchange:

“The day the ‘Note’ news was released, the community panicked. But that’s it. We haven’t seen a difference in WazirX’s trading behavior since then. There has also been speculation about the ban on cryptocurrencies the past. With over 5 million crypto users in India, I’m sure our prime minister won’t disappoint us. “

This positive outlook on the governing bodies is not shared by all industry experts. Siddharth Sogani, the founder of Crebaco, a blockchain research, qualification, and intelligence agency, fears insufficient knowledge dissemination in government agencies and insists on the need for a separate committee:

“Our government has published the draft law on cryptocurrencies that was drafted by inmates of the National Institute for Fiscal Policy and Planning without consulting an industry or professional. There are several issues to consider when it comes to politics in India. […] There should be a special government agency that regulates this industry, without which it is impossible to regulate cryptocurrencies in India. “

The reluctance of the banks

In addition to the RBI, some private banks have been reluctant to process crypto transactions for various companies in the industry. However, there is widespread speculation as to why; There could simply be a lack of understanding and knowledge of the industry, as noted by the governing bodies. However, there could be a deeper conflict of interest. Sogani said: “Banks worldwide will always be against this industry because if crypto is used, P2P transactions will eliminate the need for third-party bankers.”

From a more positive perspective, According to Sogani, banks’ skepticism could also be due to the constraints they face due to the lack of regulatory clarity maintained by governing bodies such as RBI::

“Indian banks are not sure how to deal with Bitcoin transactions. They clearly do not want to get their hands dirty if there are no crypto rules. In addition, the RBI has not withdrawn or issued any new circular banks calling for it to start working again with crypto companies. “

In response to a right of access from Harish BV, co-founder of a local cryptocurrency exchange, Unocoin, At the end of March, the RBI clearly stated that there are no restrictions on banks providing accounts for individual cryptocurrency companies and traders. This was the big RBI statement that banks should expect, but the actual quantitative impact remains to be seen.

Perceptions: Blockchain vs. Cryptocurrency

Blockchain technology, cryptocurrencies and transparency are what distributed ledger technology offers, and ideally this would be obvious to India. where corruption and bribery are common, and penetrate all areas of life. However, this potential has been tarnished by a lack of understanding and distorted presentation of events by the mainstream media that focus on illegal activities from the Darknet.

Related: Clarity of Crypto Regulation in India: The Missing Piece of Mass Adoption

In India, blockchain technology has been introduced in various economic sectors such as education and trade. So it’s clear that blockchain technology’s unique selling points are being implemented, but skepticism about cryptocurrencies still persists.. Gaurav Dahake, CEO of Cryptocurrency Exchange Bitbns, said this:

“There is confusion about understanding the whole sector. Blockchain is good, cryptocurrencies are bad, it seems to be general understanding, and traditional media has taken things out of context. Concern is about laundering money, use in illegal activities. We as stock exchanges have tried to address this. “

With all of the factors surrounding governance and regulators in mind, it’s important to remember Blockchain technology is disrupting the set growth of financial markets. Therefore, according to Sogani, it should ideally not coexist within the rules: “The cryptocurrency industry, especially Bitcoin and the surrounding ecosystem, is said to be above regulators. Even when the full RBI ban was in effect, P2P exchanges flourished.”

In the absence of an adequate legal framework Stock exchanges and other key players have stepped up efforts to self-regulate and / or contribute to the regulatory framework, such as Ripple’s recent proposal. Dahake added, “We follow almost 60% of the things that are usually prescribed to brokers or trading exchanges.”

With RBI’s statement that there is no ban on banks dealing with cryptocurrency companies and traders, there is now a clear message for a population of 1.3 billion: There are no legal issues with the ownership and transaction of this asset class. The enormous scale of demography will undoubtedly have a significant impact on the global crypto industry. its main players will try to invest and boost business in India. RBI, government and cryptocurrency companies need to work together to sustain growth seen in 2020.

User volume and growth

Actually, The cryptocurrency industry appears to be growing. The increase in interest is measured by the volume and number of users on India’s leading cryptocurrency exchanges like WazirX, which was acquired by Binance, Bitbns, CoinDCX in late 2019, to name a few. Shetty He told Cointelegraph that WazirX’s daily trading volume had increased tenfold compared to the pre-closing volume, adding:

“India’s crypto ecosystem has grown rapidly since the Supreme Court lifted the RBI ban. We see steady growth in user registration every month. In fact, the Indian cryptocurrency industry is very optimistic about the future of industry.”

Aside from the validation the industry received when the Supreme Court lifted the full ban, One of the main reasons for this growth is the decline in returns on traditional capital markets. The BSE Sensex and Nifty 50 indices, which are representative of the stock market and general investor sentiment in the country, fell by around 15% this year. despite the fact that the country’s stock markets recovered in May and June.

This superiority in performance was also observed when comparing Bitcoin yields to the Indian rupee with the asset classes popular in India, such as gold and time deposits.. According to Dahake in an email conversation with Cointelegraph, This decline in market wealth has forced investors to look for other return opportunities in their portfolios, and crypto-assets have answered the call and have much higher returns than other asset classes:

“The 3-year equity return is negative. FD returns have dropped from 8% -9% to 5.5% in the past 5 years. The rupee has depreciated more than 20% against the US dollar in the past 2 Years, and more than 100% in the past 12 years. Overall, Bitcoin has massively outperformed all of these asset classes, so users are interested in diversifying into Bitcoin. “

Another reason for this growth is the spread of crypto-education that took place during the rigorous blockade. Traditional investors have tended to learn about the cryptocurrency market due to the stock market crash, and rudimentary investors have found time to familiarize themselves with the basics of blockchain and cryptocurrency technology to make more lucrative investments than are available in traditional capital markets.