Future of Bitcoin & Cryptocurrency In India After RBI Ban

Future of Bitcoin & Cryptocurrency In India After RBI Ban
Sudhir Khatwani

Future of Blockchain & Cryptocurrency In India

Believe it or not, the picture is this:

RBI has banned Indian banks to serve Bitcoin & cryptocurrency exchanges.

The Indian central bank (RBI) issued a press release stating:

It said– "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 with 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." (Source)

Statement from @PocketBitsIndia, Indian Bitcoin exchange. Tldr; No Bitcoin ban, Indian exchanges aren't working with banks anyway so doesn't really affect them pic.twitter.com/lsbk0Tv7O3

— WhalePanda (@WhalePanda) April 5, 2018

And this simply means:

RBI has asked its own regulated entities such as (Banks) to stop servicing individual or business entities dealing in cryptocurrencies for fiat (INR) on and off-ramps. So now, you may not be able to buy/sell cryptocurrencies for INR through banks.

Of course, peer-to-peer options are still open and the same CoinSutra has mentioned in detail here also: RBI Bars Indian Banks From Facilitating Services To Crypto Related Individuals & Businesses.

But the agenda of this article is bit different:

It's About: Future of Blockchain & Cryptocurrency In India

Here I want to discuss the implications of such a step of Indian government and how the scenario might play out in the coming days or weeks as well as its long-term perspectives.

Of course, we acknowledge that the issue of Bitcoin and cryptocurrency regulation has been a persistent and painful problem due to its decentralized nature. Also, we empathize with the fact that government has done this to protect Indian consumers who are rather ignorant and often lack sufficient education regarding many obvious cryptos related MLM scams. The classic example is of Amit Bhardwaj who scammed Indians as well as other people around the world.

But do you think the way RBI reacted to this problem is wise?

I think NO!

Instead, they would have given some more food for thought for this and have not taken such extreme steps to impend the innovation happening around cryptocurrencies and blockchain.

Well, you might argue this will stop undisclosed investments in crypto and also paralyze money laundering happening through cryptocurrencies.

However, I understand that thing but think for a moment.

If there is a technical person who wants to get into the blockchain, then the easiest way for him/her is to have the first-hand experience of dealing with BTC or ETH like currencies through exchanges in India.

But when a government does like this, it is basically killing off the curiosity of that techie guy to indulge or have a look & feel of the tech.

This is like killing the miniscule blockchain or crypto market of India with your own two hands.

And as if that's not enough:

RBI says they will be launching their own version of centralized digital INR on the back of the same tech i.e. blockchain, whose growth they are impending with their own actions. And it even gives a hint that government was unable to regulate decentralized cryptocurrencies in the right way that's why they have taken this step.

But this is either highly intentional hypocrisy or simply ignorance of the fact that "Blockchain became blockchain because Bitcoin introduced it"

And this is true because I highly believe that reducing exposure to cryptocurrencies like BTC or ETH will impend India's growth in the global blockchain and crypto space.

But that doesn't mean that I support crypto scams.

Of course, they need to be stopped but that can only happen through proper education but ceasing the growth of many because few are misusing it is not the right thing to do.

Learning From Other Countries Bitcoin Ban (Plus The Good Regulations)

Indian is not a new candidate in the list of countries banning Bitcoin or cryptocurrencies, in fact, it is quite late and 8th country to do so.

China, as we all know, started cracking down on cryptocurrency exchanges and ICOs in the last quarter of 2017. And as the scenario stands there in China, Bitcoin and cryptocurrency exchanges are totally banned as Chinese government issued a similar message to Chinese banks to pack-up their services to any individual or business related to cryptocurrencies.

As a result, many big exchanges have fled China to seek shelter elsewhere as there are many cryptocurrency heavens out there. Some of these big exchanges were BTCC China, Huobi, and OKCoin etc.

But that didn't stop investors or innovators to play with or buy/sell cryptocurrencies. Of course, it dealt a great blow to the overall crypto market but there are alternatives that flourished. (we will talk about those alternatives further in the article from India's perspective)

But now back to counties banning cryptos:

South Korea made its law more stringent but have no intention to ban or suppress cryptocurrency (market). Instead, if you are a government official in Korea then you are surely banned from HODLing or dealing with cryptocurrencies failing to which you can face disciplinary charges.

On the other hand:

That's why needless to say countries, like Japan, US, Korea, and Austraila etc who have exercised extreme caution in building upon rules and regulations are actually growing in the crypto and blockchain space.

Whereas we need to look at countries similar to us as China to understand the implications on the flip side.

Just like China, India can witness:

1. A huge boom in the over the counter trades (OTC) through services like LocalBitcoins. A similar thing happened in China when Chinese government banned cryptos in their country.

There actually after the ban trading volumes jumped on LocalBitcoins China from 38 million CNY (September 2017 ban time) to 266 million CNY (January 2018 when exchanges fled China). You can see this for yourself in this chart of LocalBitcoins.

@LocalBitcoins trading volume explodes in #China as exchanges' #Bitcoin withdrawal on hiatus @YourBTCC @cnLedger @BambouClub @bitcoinist pic.twitter.com/0RDgvC9rhB

— Honey⚡Badger (@badgerbitcoin) February 13, 2017

2. Also, you will a significant spike in peer-to-peer offline trading but not sure how much it will be successful for people wanting to buy/sell a significant amount of BTC. But one thing is sure this will happen and a huge underground market will thrive on it.

How can you beat that? Obviously Not!!

3. India will be left alone behind in the race of blockchain and crypto tech as it happened during the dot-com boom. Many Indians who didn't find Indian's technological environment so conducive finally shifted to countries like US or Canada resulting in huge Brain Drain from India and rest is history.

And this can be al the more true for already successful exchanges businesses because they can easily shift to countries like Singapore, Hong Kong or Malta and serve the customers there just like Chinese exchanges did. But it will be us, Indians who will be left behind and deprived of participation in this revolution.

4. And not to forget, this step of Indian government will scare the hell out many newbies who have entered the crypto market recently as there is no clarity whatsoever what is happening around.

Result:

They will bid goodbye to the market and never come back impending their long-term growth due the FUD and uncertainty. And also, the whole new generation which is 65% millennials in India will be out of the ecosystem that is being encouraged by countries outside.

5.Lastly, people who want to continue despite government banning cryptos or not supporting it. People who have to do scams will also continue and people who want to earn only money will also continue. For example, at present, the Bitcoin prices in India are $1000 to $900 lower than the international market so one can easily make use of this arbitrage opportunity eventually despite whatever the government says.

So you see, people will do eventually what they think is right for themselves that's why I think the government should not stop it if they can't regulate it in a proper way because in anyways it will be ineffective in long-term on a resilient crypto like Bitcoin.

Further Probable Scenarios For Future Of India's Crypto Market

The government might reinstate its stand on crypto and might want to take a smarter step by regulating crypto exchanges through licensing. This will also help in recovery a lot.

From an investors point of view if you are not holding a number of bitcoins it is probably OK to stick with them and HOLD it until the end. Of course, do respect your risk appetite in this case of HODLing.

On the flip side if you are already in decent profit consider liquidating 40-50% of it in INR as you never know hen banks will totally cease supporting fiat conversions for cryptos. You can also consider opening a company in countries like Estonia, Malta, and trade or sell cryptocurrencies under that company name and bring profit to India. There are few other similar solutions that you can take advantage of without breaking any law or violating RBI guidelines.

This should not be a problem.