The recent years have seen a boom in financial transactions that made use of technology like Blockchain. This was noticed by the Reserve Bank of India, which led to cautioning holders, users, and traders of cryptocurrencies. Many firms took a break from dealing in cryptocurrency following the ban by the Reserve Bank of India.
This turned out to be a huge blow for the crypto market in India, especially at a time when the global economy seemed to be embracing cryptocurrency.
The circular released by RBI in April 2018 stated that the dealing of cryptocurrency was substantially blocked in the country. The circular offered RBI regulated firms a three month period to close accounts that dealt with cryptocurrency. This led to stopping any form of financial dealings related to cryptocurrency within the country.
The Reason RBI put a Ban on Cryptocurrency in India
The RBI circular led to the filing of a petition to addresses the legality of cryptocurrency. This was the start of the two-year battle between the RBI and the crypto community in India.
Before you head into that, it is essential to understand the reason why RBI put out a circular that resulted in the banning of cryptocurrency.
Its primary reason was that cryptocurrency lacked any intrinsic value and offered anonymity to the holder. This can lead gullible investors falling victim to scams, which has been taking place globally. The anonymity offered by cryptocurrency also poses a problem since it encourages illegal activity.
In fact, it protects people indulging in illegal transactions, putting the common holders at risk. The lack of control over cryptocurrency was another one of the touted reasons for calling for a ban. The RBI was worried that this would leave investors vulnerable in case of technical glitches, failure of transfer of funds, etc.
The anonymous nature of cryptocurrency distinguishes it from prepaid instruments. The Payments and Settlement Act, 2007 (PSSA) regulates prepaid instruments and payment systems. These regulations also specify that the payment instruments may be loaded or reloaded with cash via credit and debit cards, bank transfer, or other PPIs. Unlike cryptocurrency, pre-paid instruments have an intrinsic value, and their holder is also identifiable easily. Buy Bitcoin in India at the best rate.
The Indian Securities Exchange Board remained silent on whether to accept tokens as security or deposit. This is because security has been defined as scripts, shares, stocks, debentures, bonds, debenture stock, or other similar marketable security in a body corporate or an incorporated company. If the RBI becomes open to regulating cryptocurrency, it might see a change in the definition of the term security.
However, the main hurdle to regulating cryptocurrency is the anonymity of the trading parties. This will help prevent gullible or naïve investors from falling prey to crypto scams, which have increased in number across the globe.
Supreme Court reversed the Ban by RBI
The recent ruling by the Supreme Court in March 2020 reversed the ban by the Reserve Bank of India that prevented financial firms from dealing with cryptocurrency. The judgment has asked the central bank to submit a framework within three weeks that will deal with monitoring and regulating the crypto market in India. This has allowed many crypto firms to get back up on their feet and start looking forward to new investors.
In fact, the judgment has even brought previous traders back into the market, thereby increasing trading tremendously. With Indian claiming just around 10% of the overall cryptocurrency market, it is time for Indian crypto firms to make their mark in the global arena. The Bitcoin law in India will allow crypto firms to move forward and gather more investors. After all, cryptocurrency is here to stay. It is time for the central bank to set up rules regulating and monitoring the crypto market.
Investors are looking forward to an inflow of capital into peer to peer companies (P2P), which form the backbone of the crypto market. It also enabled the creation of a crypto ecosystem that protects the traders and monitors the transactions.
The earlier ban by the RBI might seem like a hasty move, but it was done to prevent the cryptocurrency from getting out of hand and causing gullible investors to get pulled into scams with no protection from the central bank. For the past two years, the RBI has had enough time to address the various nuances of crypto and come out with a framework that works for everyone.
At the end of the day, the framework by the Reserve Bank of India will help regulate and monitor the crypto market, thereby protecting gullible or naïve investors from falling prey to scams that have become prevalent over the world with the increasing popularity of cryptocurrency.
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