The Supreme Court has refused to overturn the central bank's ban on lenders dealing in cryptocurrencies. The question before the crypto-investors is how to liquidate their money post-July 5, 2018. There may be a solution
The Reserve Bank of India, in a circular dated April 6, had prohibited banks and financial institutions from providing any services in relation to virtual currencies such as Bitcoins, popularly known as “cryptocurrencies”. According to the ordinance, after July 5, the entities regulated by the apex bank need to terminate their relationships with firms and individuals dealing in cryptocurrencies.
It means that crypto-exchanges will not be able to let traders liquidate crypto assets. Following this, the Internet and Mobile Association of India (IAMAI)had filed a writ petition in the Supreme Court against the RBI move. However, the court refused to overturn the central bank’s ban on lenders dealing in cryptocurrencies.
The nation’s financial regulator is defending its turf for managing electronic money and also trying to cut off avenues for crimes using digital coins, many nations such as Abu Dhabi and South Korea are creating rules to allow more secure crypto trading.
Sathvik Vishwanath, CEO and co-founder of Unocoin, a Bangalore- based technology startup and one of India’s first entrants into the crypto asset industry, reveals that viable options for the exchange are the international expansion, crypto to crypto exchange, physical cash-in and cash-out options. “The industry is still bullish and based on the international outlook, the apex bank will provide some relief and solution,” he says.
But, the question is: How can investors liquidate their money post-July 5, 2018?
“We are working on a solution called WazirX peer-to-peer in case the RBI ban comes into effect. We will escrow the seller’s crypto, then the buyer can transfer the INR directly to the seller’s bank account. Once the seller confirms the receipt of the payment, WazirX will transfer the escrowed crypto to the buyer’s WazirX wallet,” said Nischal Shetty, founder and CEO of WazirX, a leading bitcoin exchange, he further said that it is the safest and the most legal way to trade crypto-asset in India.
Escrow is nothing but locking the seller’s crypto in the virtual wallet. This is done so that the buyer can be assured that crypto will be transferred to their wallet after they have transferred the money directly to the seller’s bank account.
In the absence of an escrow service, if the buyer were to transfer the INR to the seller’s account, the seller could very well run away with that money and not transfer the crypto to the buyer. Since WazirX already has control of the seller’s crypto before the buyer makes a bank transfer, the buyer can be assured of receiving the crypto to their WazirX wallet.
Ashish Singhal, Co-founder and CEO of Coinswitch.co, says that as of now, the exchange was helping investors liquidate their digital assets at market price. Once the deadline is crossed, existing investors would still be able to liquidate their cryptos. They can always approach the OTC market and sell off their cryptos for Indian currency. Alternatively, in a P2P model, an exchange would typically escrow the cryptos, ask the buyers to directly transfer the amount into seller’s account, upon which the cryptos would be released to the buyers. Lastly, investors may also engage with their personal contacts and networks and sell cryptos to the ones who are interested in buying the same.
In India, the finance minister has yet to make a final ruling on a formal ban. As uncertainty looms over the future of digital currency, the government and the RBI have issued several warnings against dealing in cryptocurrencies, including Bitcoins, the former even comparing it with a Ponzi scheme.
A report by the Centre for Social and Economic Research concludes that “given the global, transborder character of cryptocurrencies, it is recommended to harmonise the regulations across jurisdictions”, which is, of course, going to take time.