Tag: crypto currencies

Experts, BFSI News, ET BFSI

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Ahead of the government’s bill on cryptocurrency, there is no clarity on whether the government plans to ban cryptocurrencies or regulate them.

The bill intends to ban all private cryptocurrencies, with certain exceptions, to promote the use of the underlying technology of cryptocurrency. The much-awaited bill also aims to provide a framework for the creation of an official digital currency to be issued by the Reserve Bank of India. The government has already made it clear it has no plan to make cryptocurrency a legal tender.

What if govt bans cryptos

In the event government plans to ban cryptocurrencies, experts said any crypto ban could cause investors to move underground and obtain cryptos and trade in them illegally. Moreover, the P2P transactions do not fall under any legal ambit and hence, decentralised exchanges would continue to thrive regardless of the ban. Banning cryptos would not only prove a technological challenge for the government but also mean huge capital funds moving out of the country.

The Blockchain and Crypto Assets Council, the association of crypto exchanges in the country, released a statement reiterating the futility of the ban. A blanket ban on cryptocurrencies will encourage non-state players, thereby leading to more unlawful usage of such currencies, it said.

“The Council has always argued in favour of prohibiting the usage of private cryptocurrencies as a currency in India by law since usage as currency is likely to interfere with monetary policy and fiscal controls. On the other hand, the council has advocated their use only as an asset. The council believes that a smartly regulated crypto assets business will protect investors, help monitor Indian buyers and sellers, lead to better taxation of the industry, and limit illegal usage of cryptos,” BACC said in a statement.

Grey areas

Also, the government needs to define the scope and meaning of the term ‘private cryptocurrencies.’ Almost all the cryptocurrencies would be private except significant cryptocurrencies like Bitcoin and Ethereum that the miners collectively own, if the definition concerns ownership rights or anonymity of transactions.

However, except like Bitcoin, not all cryptocurrencies are store of value with there being utility tokens like Ethereum, Cardano.

Experts said the exchanges could be asked to follow stringent KYC/AML procedures to dissuade money laundering and terror financing activities.



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ORF report, BFSI News, ET BFSI

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New Delhi, Nov 30 (PTI) With an estimated 15 million Indians holding digital currencies, cryptocurrencies need to be regulated like any other financial asset and it would be unwise for India to ban private crypto assets when it has the ability to capitalise on it, a study released by Observer Research Foundation (ORF) said on Tuesday. The Indian crypto asset industry has witnessed exponential growth over the last five years. An estimated 15 million crypto-asset holders have put in Rs 660 crore in these crypto asset holdings.

India now has two crypto unicorns and over 350 crypto startups in what is clearly a flourishing industry.

The report said the country is well placed to capitalise on the opportunity that crypto-assets present due to its expanding private crypto market.

“Cryptocurrencies, like any other financial asset, need to be regulated in order to ensure consumer welfare as well as promote innovation,” a statement summarising the findings of the report on Regulating Crypto Assets in India said. “It would be imprudent to place a blanket ban on private crypto assets. This would result in significant revenue loss to the government and may encourage nascent industries to operate illegally.”

The new monograph by ORF in collaboration with the Esya Centre presents a deep dive into the growth of cryptocurrency in India and proposes a balanced regulatory approach.

India, the report argues, has a history of banning goods and services that exemplify innovation in new markets. Such bans often lead to unintended consequences, which include large revenue losses to the government that impact the livelihoods of people, and have had severe implications for industries, forcing them to enter illegal markets.

It cited the recent example of the ban on the use of drones in India in 2014. That ban effectively clipped the wings of a nascent domestic industry, while people continued to use them in defiance of the ban.

Meanwhile, Chinese companies such as Da-Jiang Innovations (DJI) manufactured recreational drones during 2014-2018 at scale and now command 70 per cent of the global market. They have also diversified into end-to-end drone management services such as photo and video editing software.

In 2018, India realised that a blanket ban was ineffective and resulted in a missed opportunity for the domestic industry. It, therefore, introduced a regulatory framework to govern the use of drones in the country.

Similarly, much earlier in the pre-liberalised era, India tried to ban the import of gold. However, after several years of trying to clamp down on smuggling, the government had to withdraw the ban.

“A prohibition on the crypto assets may have similar repercussions for the crypto asset industry. Due to the decentralised nature of the technology and the ease of transferring crypto-asset using the public key, it is technically impractical to stop the inflow of crypto-asset from abroad,” the report argues.

The report is a first-of-its-kind deep-dive into the world of cryptocurrency in India – one of the fastest-growing consumer bases globally. This analysis comes at a time when the government is looking to introduce a bill to regulate the asset.

It offers key policy suggestions on building the ideal crypto regulatory framework that would both benefit India’s economy and ensure consumer welfare, the statement said.

Instead of banning, the report suggests a balanced regulatory approach, which addresses the concerns of fiscal stability, money laundering, investor protection and regulatory certainty while fostering innovation.

“Most regulatory formulae necessary to address the policy concerns related to crypto-assets, such as investor protection, foreign exchange management, money-laundering and tax evasion, already exist in financial legislation,” says co-author Meghna Bal. “They just have to be adapted to accommodate an emerging technological paradigm. The recommendations in our report show how this can be done.”

In India, classifying crypto as security, good or capital asset could lead to unintended restrictions on investment or leave regulatory gaps in key policy areas. A sui generis crypto framework that adopts the nuances of the crypto industry would be more appropriate and in keeping with emerging global trends.

The report also lays out suggestions for lawmakers on what a crypto regulatory framework must include: it must be technology-neutral, innovation-friendly and consistent, to fully harness India’s potential in this domain.

Among other things, the framework must lay down clear definitions, identify the relevant regulatory bodies and create KYC/anti-money laundering obligations, the report says.

The regulatory framework should also protect crypto asset service providers from being liable for the actions of investors on their platforms. This will help asset service providers innovate and scale new crypto-based products and offerings.

The report proposes that the Government adopt a co-regulatory approach where industry associations and authorities such as SEBI, the RBI, and the Ministry of Finance share the responsibility of oversight. Such an approach follows the Japanese model, where authorities have tasked industry associations to enforce regulations. Providing incentives to industry whistle-blowers could help players within the crypto-market self-regulate.

What India needs is a facilitative regulatory framework that would boost the growth of India’s crypto ecosystem while addressing any possible harms to consumers and society at large, it added.



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Explainer: Digital currency vs cryptos – how are they different?

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The Centre’s plans to ban cryptocurrencies but introduce an official, digital currency. There is some confusion on the differences between the two – there are at least six key variances between official digital currency and cryptocurrency. While all cryptocurrencies could be considered digital currencies, not all digital currencies need to be official sovereign backed currencies. For instance, the virtual currency used in say, an online game, is also a form of digital currency, not backed by a central bank but governed by the game creators. Apart from that, the other key differences are: 

Issuing authority 

Offical digital currencies are issued by the central banks of a nation-state that oversees the banking system in that country. For instance, in India, like regular fiat currency, it will be the Reserve Bank of India that will issue digital currency, when mandated by the government. Similarly, in the US, it will be the Federal Reserve. However, in the case of cryptocurrency, there is no single issuing authority. Cryptocurrencies are usually developed by teams as a piece of code used for issuance through ‘mining’. Creation, as well as use, is maintained through a distributed ledger. They transmit value across a decentralised network of users. Thus while digital currencies are centralised, cryptocurrencies are de-centralised. 

Encryption and underlying tech 

There is little encryption that happens in official digital currency and no special cybersecurity measures. Anyone with a regular online bank account, for instance, can store and use digital currencies. Think of this as a form of e-cash. However, blockchain is the underlying technology used in most cryptocurrencies and, usually, these are stored in ‘wallets’ with a high degree of cyber security. 

While it is true that some of the crypto wallets have been hacked, generally the degree of cyber protective measures taken beforehand are more in the case of cryptocurrencies. 

Stability and fluctuation 

While official digital currencies are largely stable in value and thus easy to own and use in the global market, cryptocurrencies can wildly swing in value. In a single day, the price of a unit of cryptocurrency can vary as much as 50 to 70 per cent. Thus, fiat digital currencies provide more stability, while cryptocurrencies are known for their high degree of volatility and consequent risk. 

Transparency 

One key area where cryptos score is transparency. In this case, the entire history of transactions between two parties can be seen as it is done on blockchain and is immutable (cannot be changed). However, in the case of central bank-issued digital currency, it is the centralised issuing authority that decides how much information it wants to share. The receiver or sender of digital currency will receive information only related to that transaction. 

Cost of transaction 

In the case of digital currency, the issuing authority or the centralised controller can levy transaction fees each time the currency is debited or credited. The blockchain technology used in cryptocurrencies ensures that such expenses are minimised as there is no commission for third parties. This is especially useful when cryptocurrency is used to buy or sell, high-value assets. 

Legal framework 

In most countries, there is some kind of legal framework and protection around official digital currencies. However, when it comes to cryptocurrencies, that is not the case; in several parts of the world, it is still a grey area. Except for El Salvador, which decided to use Bitcoin (currently the most popular cryptocurrency) as legal tender, cryptocurrencies are in unchartered territory with their legal status not clearly defined. 

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All that is dubious about crypto currencies

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It is quite timely that the government and regulators are looking closely at cryptocurrency. The interesting part is that it does not come under SCRA and hence SEBI is not involved. It does not involve financial institutions and hence RBI is out. It has not been declared illegal by the Courts and hence the government cannot do anything as of now. It is a unique fad because it is prevalent across the world and more importantly it trades without there being any underlying value.

Crypto is a creation of the imagination which is protected by technology and brought on to several platforms which enables trading. Anyone can start their own crypto, but multitude of people need to believe in it and start trading. Not surprisingly even though there are over 7,000 such currencies not more than 10 are actively traded and command value. Clearly lots of people have tried floating their imaginary currencies and have failed. It runs on belief and trust with no regulators to lay down the rules.

Two things stand out here which needs to be answered by regulators.

First, is whether it is being used as a mode of transaction. Currently there is no information if people are buying and selling property and paying partly in crypto currency. If such things are happening, then it is something the RBI should be concerned about, because we cannot have parallel currencies in the country. It is illegal to carry out transactions in foreign currency in India and while barter exists in some pockets it is not the rule. If a crypto is allowed to become a currency for transactions, then it will undermine monetary policy and the entire system of payments will go for a toss. And finally in case there is a crash in value, the investors will lose money for which there is no recourse.

Also, there is need to know more on how these transactions take place. There are exchanges which allow one to trade; and it is still unclear whether the transactions are in rupees and remain in this currency or get converted to dollars. If it is in rupees and mimics what happens to the crypto globally then it is not serious, but if there are conversions into dollars then there would be a FEMA rule to contend with.

The exchanges which promote trading in crypto are transparent in terms of doing a KYC of all players. This aspect needs to be clear because if there is conversion into dollars at any stage it needs to be within the guidelines put by the RBI.

Investment option

The second aspect is the investment option. If cryptos are being used as an investment option by people, then the nature of debate changes. The exchanges vouch that there is KYC done for every customer and that all taxes are paid on the gains. It is still not clear if the gains come under short or long term and the I-T Department will have to decide on this issue.

The broader issue is that if one can trade in imaginary currencies it does tantamount to gambling which is partly permitted in the country. Horse racing and the bets that go along with this avocation is legitimate as are lotteries. Casinos can operate in some States. If trading in cryptos fall in this category, then as an extension it can be argued that people should be allowed to gamble on cricket matches too and there should be a level playing field.

Therefore, there is need to do a deep dive analysis into this entire issue of crypto currency as the level of interest is high and increasing. Part of the reason is that people want to make quick money and the present avenues of savings — bank deposits which give a paltry return — makes these alternatives alluring. Allowing such investments also risks savings getting diverted for speculative purposes which is not good for an economy which normally has a big gap in savings and investments.

Besides people investing should know what they are up against. SEBI runs strong campaigns along with the stock exchanges to caution investors on trading as well as investing in mutual funds which all have ‘underlying’ products like shares, commodities or bonds. For something fictional, people need to know what they are up against, because when there is a crash there can be an issue. The price of bitcoin had risen from $8,527 on March 1, 2020 to a high of $62,986 on April 15, 2021 and then fell to $30,822 on July 20, 2021. It again crossed $67,000 on November 9. Intuitively it can be seen that there would be several gainers and losers in this game and those who are in the latter category could be the ones who have been lured by the lucre.

Threat for central banks

Globally this has become a wave which cannot be stopped. Some states in the US accept bitcoins for transactions as do some of the Nordic countries. It is not a good precedent for central banks which will see their power over monetary policy getting denuded. Interestingly, the concept of crypto emerged on the premise that central banks and governments mismanage money and make them worthless with loose policies. This made the concept of bitcoin enticing driving its popularity.

The fear of a backlash at some point of time is palpable and this concept can be likened to a Frankenstein which may be hard to push back once it grows roots in the system. Ideally a call should be taken for sure to make it illegal for transactions as this strikes the edifice of not just the financial system but also monetary policy. On whether it should be allowed as a form of gambling, there can be further debate.

The government need not be concerned over people who are aware of the downside of cryptos, but the less financially literate need to be educated just as it is done for sin products. Maybe a bold print saying ‘trading in crypto can be bad for your financial health’ can be the beginning.

The writer is an independent economist and author of: Hits & Misses: The Indian Banking Story. Views expressed are personal

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Explainer: What are NFTs, and why the sudden frenzy about them?

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NFT stands for Non-Fungible Token. Ok, let’s explain. Non-fungible means unique and something that cannot be substituted with another. For example, while a ₹2,000 note can be substituted by another note of the same denomination, or a ten-gram gold coin with another gold coin of equal weight, that is one is fungible (inter-changeable, non-unique to the other).

MS Dhoni’s bat, which he used in the 2011 World Cup final to help India win the title, is unique, and has no substitute.

Similarly, think of an original handwritten letter by Mahatma Gandhi or a particular painting by MF Hussain. These are unique and non-fungible – there is no substitute to the original.

The currency note, gold coin, cricket bat, letter and painting examples used above are all real physical things. If you extrapolate that to the digital world with the help of blockchain, you would have an NFT. It is like a digital world collectible, a digital asset, which is available to be bought and sold online, with digital proof of ownership through blockchain. But then, what is blockchain?

What is blockchain?

Unless you have been living under a rock or are a sworn technophobe, you would have at least heard of ‘blockchain’ being mentioned in the news and daily conversations. Blockchain is a decentralised ledger, where data is stored in the form of blocks, and comes together as chains (thus blockchain). As the name suggests, it is ‘decentralised’ – it is distributed.

Since there are multiple copies of the shared database, no single user can tamper or change any data, thus ensuring trust and large-scale acceptance. The innovation with blockchain is that it guarantees the trustworthiness and security of a record of data without the need for a trusted third party. Think of blockchain as a ledger whose records of transactions cannot be altered, deleted or destroyed. Each new block is added to a chain, but the old ones cannot be altered or manipulated.

While the blockchain technology has been around for nearly three decades – it was first proposed in 1991 – it become mainstream over the last decade, mainly due to the popularity of cryptocurrencies such as Bitcoin, which use the blockchain technology. This is the technology which underpins everything from cryptocurrencies, decentrailised finance (DeFi) applications, NFT’s and Smart Contracts.

How do NFTs work?

Most NFTs are part of Ethereum blockchain. Ehtereum is a cryptocurrency like Bitcoin, Shiba Inu or a Dogecoin. Other cryptocurrencies, too, can and indeed, are offering NFTs, but the most popular one right now is the Ethereum blockchain and transactions happen using ETH coins. NFT, is thus, any digital asset such as a piece of music, image, photograph, painting, GIF, meme an audio or video file or game that can exist in a digital format.

Just like in the real, physical world where we assert ownership and usage rights, as we move to an increasingly digital world, there, too, if you own something digital, you can assert your ownership and how the asset could be used. That creates value. For instance, Twitter CEO jack Dorsey sold the NFT to his first tweet for about $2.9 million, the proceeds of which Dorsey had said would be given to a charity. Are you asking yourself what the buyer got for the purchase of Dorsey’s NFT? The tweet itself continues to be live on Twitter, but the winning bidder would own the NFT, which is signed and verified by the creator, similar to a virtual autograph. By now you would be wondering why one cannot can’t just save the tweet and what is so unique about it.

Think of what you get when you buy, say, a painting by your favourite artist. You feel happy and proud about owning something. NFTs are similar to it. What is the value of your painting? Whatever the market is ready to pay. That is the case even in NFTs. This is also a new alternative investment asset class, which is hugely speculative. For instance, this article could be sold as an NFT if there is a buyer who wants to purchase it.

NFTs in India

Recently, Amitabh Bachchan sold a number of NFTs, including his recital of his father’s famous poem Madhushala, apart from various other NFT offerings from his movie career, for $1 million. Similarly, actress Sunny Leone sold her NFTs in a private sale. Others, too, including Salman Khan, singer Mika Singh, poet Priya Malik and numerous others, have offered NFTs or are in the process of doing so.

In India NFTs can be brought on various trading places such as crypto exchange WazirX, NFTically, Wall.app, Zebpay and a number of other platforms. These platforms act as digital middlemen. Sellers can set a price for their NFTs or opt for an auction. While we are still in the early days of NFTs, the type, range and price available is likely to go up.

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More than 2 lakh crypto accounts blocked in India over 6 months

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The past year or so has seen decentralised cryptocurrency slowly becoming part of the mainstream narrative. On the seamy side, the digital currency has also provided an avenue for online criminal activities involving tax evasion and other kinds of serious frauds.

In the past six months, between April-September 2021, the top three cryptocurrency exchanges – WazirX, CoinSwitch Kuber and CoinDCX – have blocked over two lakh accounts citing malicious activities.

Malicious activities

CoinSwitch Kuber alone has suspended 180,000 accounts in the past six months, while it is currently monitoring the daily activities of around 200,000 accounts that can possibly be malicious, Sharan Nair, CBO, CoinSwitch Kuber, told BusinessLine.

WazirX has blocked 14,469 accounts after receiving requests from Indian and foreign law enforcement agencies. Foreign law enforcement agencies raised 38 requests. These came from countries including the US, UK, France, Austria, Switzerland and Germany. But over 90 per cent of the accounts were blocked after complaints from other users and the company’s internal tracking mechanism.

Nischal Shetty, Founder, WazirX, told BusinessLine, “WazirX is part of Blockchain and Crypto assets Council (BACC) along with other crypto exchanges. Our exchange is able to trace all users on the platform with official identity information. We already have a robust KYC and AML enabled policy that we follow to self-regulate in the absence of regulatory guidelines. All the necessary information to track malicious activities that are “facilitated” by blockchains are publicly available.”

He added, “Additionally, WazirX has collaborated with TRM Labs, a cryptocurrency compliance platform, for transaction monitoring and investigation, wallet screening and risk management. It has helped bolster the security of the platform and scale compliance initiatives.”

Notice to WazirX

WazirX was recently issued a show-cause notice by Enforcement Directorate for alleged violation of the Foreign Exchange Management Act on transactions involving crypto-currencies worth ₹2,790 crore. The ED then said it has initiated a probe on the basis of its ongoing money-laundering investigation into Chinese-owned illegal betting applications.

According to Nair, the pandora’s box opens when one is able to send cryptocurrency outside the exchange. “The biggest problem the regulators have is with people buying bitcoins on one platform and sending it to unknown addresses. Nobody is able to track who these addresses belong to and what is the intent of these addresses. Even the crypto exchanges won’t be able to track it,” Nair said.

To curb this issue, CoinSwitch Kuber doesn’t let its users withdraw or move their funds in cryptocurrency. To withdraw their money, they have to first sell the crypto asset on the exchange and get their money deposited directly into their bank accounts in INR.

Lack of regulation

Policy experts said that though the exchanges are themselves blocking suspicious accounts, the real issue is the lack of regulation.

“The crypto world is largely unregulated. While the Reserve Bank of India has already expressed its reservation in allowing cryptocurrency, the government is yet to announce its stance on the issue,” said an industry expert.

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Visa says spending on crypto-linked cards topped $1 bn in first half this year, BFSI News, ET BFSI

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Visa Inc said on Wednesday its customers spent more than $1 billion on its crypto-linked cards in the first half of this year, as the payments processor takes steps to make crypto transactions smoother.

The company said it was partnering with 50 cryptocurrency platforms to make it easier for customers to convert and spend digital currencies at 70 million merchants worldwide.

The move is in line with Visa‘s broader acceptance of digital currencies. In March, the company announced it will allow the use of the USD Coin to settle transactions on its payment network.

Investor sentiment on cryptocurrencies has somewhat soured recently, with regulatory crackdowns in China and elsewhere. Bitcoin, the world’s biggest cryptocurrency, has seen a punishing slide following the euphoria earlier this year which took it to record highs.

However, a clutch of high profile names are continuing to strengthen their involvement with the digital assets. Last week, Japan’s investment giant SoftBank Group Corp invested $200 million in Mercado Bitcoin, one of the largest cryptocurrency exchanges in Latin America.

Wells Fargo & Co said in May it would onboard an actively managed cryptocurrency strategy for its wealthy clients, while Goldman Sachs Group Inc launched a crypto trading team the same month.



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BIS, BFSI News, ET BFSI

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Central bank digital currencies can offer “finality, liquidity and integrity”, and could provide strong data governance as well as privacy standards based on digital identities, the Bank for International Settlements (BIS) said on Wednesday. The backing for such currencies by the Switzerland-headquartered BIS, which is also known as the central bank of all central banks, also comes at a time when there are ongoing intense discussions in India and many other countries on crypto currencies.

Noting that central banks stand at the centre of a rapid transformation of the financial sector and the payment system, BIS said Central Bank Digital Currencies (CBDCs) represent a unique opportunity to design a technologically advanced representation of central bank money, one that offers the unique features of finality, liquidity and integrity.

“Innovations such as crypto currencies, stable coins and the walled garden ecosystems of big techs all tend to work against the public good element that underpins the payment system.

“The DNA (Data-Network-Activities) loop, which should encourage a virtuous circle of greater access, lower costs and better services, is also capable of fomenting a vicious circle of entrenched market power and data concentration. The eventual outcome will depend not only on technology but on the underlying market structure and data governance framework,” BIS said.

On Wednesday, BIS released a chapter titled ‘CBDCs: an opportunity for the monetary system’ that is part of its Annual Economic Report 2021.

To realise the full potential of CBDCs for more efficient cross-border payments, BIS said international collaboration will be paramount.

“Cooperation on CBDC designs will also open up new ways for central banks to counter foreign currency substitution and strengthen monetary sovereignty,” it

A few countries, including China, are working on CBDCs.

An analysis BIS found that CBDCs would best function as part of a two-tier system where the central bank and the private sector work together to do what each does well.

From a practical perspective, the BIS said the most promising CBDC design would be one tied to a digital identity, requiring users to identify themselves to access funds. A careful design would balance protecting users against the abuse of personal data with protecting the payment system against money laundering and financial crime, it added.



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Bitcoin barrels into ‘Death Cross’ as chartist backdrop darkens, BFSI News, ET BFSI

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Amid Bitcoin’s decline this week, eagle-eyed chart-watchers noticed an ominous-sounding technical breach could be at hand: the coin is approaching a bearish pattern known as a death cross.

The world’s largest digital currency has slumped, pushing its average price over the last 50 days close to its 200-day moving average. Should the short-term line cross below the long-term one, the coin would reach the forbidding formation. The indicator is typically seen as a closely-watched technical measure that could offer a hint at more pain to come.

The last time Bitcoin marked a death-cross was in November 2019 — the cryptocurrency was down roughly 5% one month after crossing it.

While it’s not done so yet, “the collision seems unavoidable at this point,” wrote Mati Greenspan, founder of Quantum Economics. “A death cross could be an indication that prices may remain subdued for a while to come.”

Bitcoin has been mired in a downtrend spiral in recent weeks, losing about 45% since mid-April, when it hit a record high. The recent selloff was exacerbated by billionaire Elon Musk’s public rebuke of the amount of energy used by the servers underpinning the token. Increased Chinese regulatory oversight also soured the mood.

On Tuesday, Bitcoin tumbled as analysts pointed to a technical breakdown as well as the recovery of Colonial Pipeline Co.’s ransom as evidence that crypto isn’t beyond government control. The U.S. recovered almost all the Bitcoin ransom paid to the perpetrators of the cyber attack on Colonial last month in a sign that law enforcement is capable of pursuing online criminals even when they operate outside the nation’s borders.

In the meantime, chartists are eyeing the $30,000 level, which the coin briefly touched last month during a brutal selloff. Breaching that round-number mark, they say, could trigger another wave of selling given the lack of technical support between $20,000 and $30,000.

Still, Greenspan adds a caveat about the death-cross: it’s typically followed by a so-called golden cross, which tends to be a bullish signal. “If prices bottom out around here, we can probably expect a strong rally to resume once the market is ready for it,” he said.



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Despite RBI clarification, crypto deals still remain a grey area for investors, banks

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While banks have stopped warning customers against cryptocurrency transactions, investors are still not sure on the way forward.

Cryptocurrency investors do not expect to face problems in banking transactions after the notification by the Reserve Bank of India to ignore its directive post the Supreme Court ruling. But while most banks said they will abide by the RBI direction, they are looking for more regulatory clarity.

“Certain banks were not providing services or had reservations over cryptocurrency related transactions but this circular from the RBI will help banks have a clear stance,” said Ramalingam Subramanian, Head of Brand and Communication, CoinDCX The RBI had not issued a fresh circular post the Supreme Court ruling, which led to a lot of flux, he further said.

The expectation now is that banks will allow processing of such transactions through their payment gateways and not ask customers to desist from trading in such currencies.

Due diligence process

“The RBI notification clarifies that as of now there is no ban from the RBI on cryptocurrencies, and individuals holding or trading in cryptocurrencies and crypto businesses enabling this do not violate any RBI policy. Moreover, this also goes for banks — the mention of due diligence procedures clarifies that banks can service such individuals with suitable risk mitigation measures in place,” said Asheeta Regidi, Head, Fintech Policy, Cashfree.

The RBI had, on May 31, asked regulated entities to not cite its April 2018 circular on “Prohibition on dealing in Virtual Currencies” as it is no longer valid following the Supreme Court ruling. It also asked them continue carrying out customer due diligence in line with regulations for KYC, AML, Combating of Financing of Terrorism (CFT) and obligations of regulated entities under the Prevention of Money Laundering Act, (PMLA), 2002.

“Basis this notification, banks have stopped sending messages to customers advising them not to carry out cryptocurrency transactions. However, now it will be up to each bank on how to proceed with such transactions. Banks will carry out the due diligence as directed by the RBI,” said a banker who did not wish to be named, adding that there is a need to end the regulatory grey area around cryptocurrencies.

‘Speculative assets’

Another expert pointed out that cryptocurrencies continue to be speculative assets. “Most central banks are still examining what to do on the issue, while some have sent out advisories,” he said, adding that many are working on a Central Bank Digital Currency (CBDC). Significantly, both crypto investors and bankers are hoping for some direction from the Finance Ministry. The Centre had proposed to bring a legislation to ban cryptocurrencies but has put it on hold for now.

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