The cryptocurrency system in India may no longer exist in legal grey area.
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The final Supreme Court hearings to determine whether or not the virtual monies get relief from India’s banking regulatory system crackdown have begun.
In April, the RBI had issued a directive for lenders to end all crypto dealings within 3 months.
Since that deadline, everything for Bitcoin and others became sh*tcoin in India as the industry took a major downturn.
If you need an example of this, Unocoin, a Bangalore cryptocurrency, dropped from a peak of over 200,000 traders to around 20,000 since July.
So naturally the cryptocurrency exchanges lost their collective sh*t.
They took the central bank to court. Their plea for an interim relief had not been granted.
Besides the RBI, the Modi government, the Securities and Exchange Board of India (SEBI), the enforcement directorate, and the income tax department, too, are party to the case filed.
Let’s look at both sides of the argument
In May, the supreme court asked the exchanges to engage with the central bank directly while the courts were like “f*ck this, we’re out.”
and went on vacation for over a month. In July, under the court’s order, the RBI explained why cryptocurrencies make them nervous AF.
First off, good guy RBI wants to protect more gullible investors from losing out due to price fluctuations and scams.
Like when bitcoin lost nearly $200 billion in market capitalisation in just about two months after hitting the December 2017 peak, the RBI pointed in its annual report released last month.
Since transactions are anonymous, keeping a check on the funds channeled into them can also be difficult. According to the RBI, besides money laundering and terror financing, it can also lead to taxation troubles. The rise of cryptocurrency scams globally being a case in point.
According to the RBI, these digital currencies have no intrinsic value, as they are not backed by real assets, and that is another problem. Instead, the central bank is considering a cryptocurrency of its own to address this issue.
Even the government has been uncomfortable with cryptocurrencies and had compared them to ponzi schemes. It has also issued advisories warning people against investing in these digital currencies. Meanwhile, a panel was formed in December 2017 that is currently studying virtual currencies and ways to regulate them.
The virtual currency exchanges have challenged the RBI mainly on two grounds.
These are: the Indian constitution allows citizens the right to carry on any occupation, trade, or business, and prohibits discrimination, calls for equal protection under the law for all.
The industry says it has largely followed proper know-your-customer and anti-money laundering guidelines that help authorities track the money trail. Now, however, due to the crackdown, a large part of the trade has shifted to cash transactions, which may boost illegal activities, an issue pointed out by the RBI recently.
The exchanges have also said consistently that they are open to more scrutiny and regulations.
In their communication with the RBI, industry players have agreed to include more information and precautionary measures such as passport details and insurance.
As for frauds, the exchanges argue these could happen anywhere that money is involved, and so cannot be the grounds for a ban.
The industry has also countered the RBI’s argument of the lack of intrinsic value, saying such value already exists and is sure to develop over time.
“For instance, in order to run certain computer programs, you can pay using ether. Moreover, as the market matures and more people and institutions start using it, there can be more use cases that can boost its intrinsic value”