The Reserve Bank of India (RBI), India’s premier Bank on Thursday, finally clamped down on cryptocurrencies. As part of its bi-monthly monetary policy statement, the central bank stated that, with immediate effect, entities regulated by it can no longer deal with or provide services to any individual or businesses dealing with or settling virtual currencies. A circular on the same will be issued soon, the RBI said. The central bank in the past has issued a repeated warning about investing in virtual currencies like bitcoin.
This will impact nearly 50 lakh Indians who have invested in cryptocurrencies, as well as India’s crypto exchanges. Bitcoin investments in India are estimated to be in the region of $2billion.
Although the policy statement has effectively put a ban on making new investments in cryptocurrencies with immediate effect, existing investors have been given a window: “We have decided to ring-fence the RBI regulated entities from the risk of dealing with entities associated with virtual currencies. They are required to stop having a business relationship with the entities dealing with virtual currencies forthwith and unwind the existing relationship within a period of three months,” BP Kanungo, Deputy Governor, RBI said.
So, if you have investments in any virtual currencies, you now have three months to make up your mind on what you should do – get out or stay put.
What existing investors can do
Now, RBI’s statement on cryptocurrencies is directed mainly at banks, but this diktat will have an impact on the investor because you need fiat currency to trade in virtual currency. When that channel is plugged, there is obviously a reason for retail investors to worry – even if they want to exit, it will be troublesome.
Further, unlike other investment avenues, cryptocurrencies are not regulated by the government entities nor does a regulatory body watch over it. Investors have no official authority to redress their grievances.
At the moment, cryptocurrency investors have two options.
Get out: It is not just the apex bank that has clamped down on virtual currencies, the government, too, has issued stern warnings. Arun Jaitley, in his budget speech, said that the government does not recognize cryptocurrencies as legal tender. Going will only get tougher for cryptocurrencies, its exchanges, and its investors. If you do not want to take that kind of risk with your money, it would be best to get out.
Ishmeet Singh, Advisor to Deep Aero, an artificial intelligence and blockchain based drone innovation firm says “It is best for current cryptocurrency investors in India to divest their holdings into the legitimate assets or investments in the window provided by the RBI. This will enable them in safeguarding their finances while also protecting their relationship with regulated entities like financial institutions and banks. If the investors fail to withdraw their assets in the given time, they would not have an option to divest their assets in India. “
The process to get your money out will depend on the crypto exchange you have used – how easy or difficult it is or even if you will get your money back.
Deepak Kinger, Vice President, Banking and Financial Services, Virtusa Corp, a US-headquartered information technology consultancy firm, says, “The move by RBI prohibiting banks and other financial institutions (NBFCs, e-wallet providers) to provide services related to the settlement of virtual currencies will certainly throttle the ‘crypto-craze’ in India. If individuals and businesses (read crypto exchanges like Uncocoin, Zebpay, and CoinSecure) are not able to transfer money back and forth from their fiat accounts, the entire ecosystem of virtual currency trading within India will eventually shut down.”
“RBI will likely provide a timeline of 3-6 months for banks to exit their crypto-related services. This provides a window for investors to exit their positions and transfer money back to their accounts. However, because of this sudden spike in activity, exchanges may put limits on daily/weekly withdrawals. It will, therefore, be difficult for existing investors to recover all of their money,” adds Kinger.
Transfer to global exchanges: This one way of staying invested in virtual currencies. You can transfer your holdings in an Indian crypto exchange to a foreign one. “For investors wanting to trade long term, they will need to look at global exchanges like Binance and Coinbase to continue trading for a longer time. These exchanges support most of cryptocurrencies including bitcoin, ripple, litecoin and ethereum. They will obviously need to take care of the and international remittance guidelines,” adds Kinger.
Singh informs that if the crypto-assets are divested on exchanges outside India, such transactions may fall under the Foreign Exchange Management Act (FEMA).
Here’s what the RBI circular says regarding cryptocurrencies
“Technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system. However, Virtual Currencies (VCs), also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity, and money laundering, among others.
Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately.”
INDIA RBI’s cryptocurrency clampdown