Money & Banking

‘RBI excluding cryptocurrencies from regulatory sandbox is an unfair move’

Priyanka Pani Mumbai | Updated on April 24, 2019 Published on April 24, 2019

Existing bitcoin players and cryptocurrency investors feel the Reserve Bank of India should review its proposal to put crypto-related start-ups in the negative list.

In a draft proposal published on April 18, the central bank had explained the need, objective, principles, risks, benefits, and legal issues of having a regulatory sandbox (RS) for the country’s fintech firms. The RS is potentially an important tool, which enables more dynamic, evidence-based regulatory environments that learn from and evolve with emerging technologies.

However, the RBI has excluded crypto-related start-ups/entities from using the RS, though it is allowed for blockchain start-ups.

“A sandbox would have helped Indian entrepreneurs participate more freely in building blockchain-based applications. What is confusing is that the draft speaks about blockchain being allowed but not for cryptos. Now, that’s a clear proof of the misunderstanding of blockchain. Without crypto, public blockchain projects cannot be built. So, this sandbox is practically useless for all public blockchain projects,” Nischal Shetty, Founder and CEO of WazirX, told BusinessLine.

WazirX is a P2P crypto-trading platform, which assumed popularity among crypto investors after the RBI barred banks and other regulated financial institutions from dealing with crypto-related entities. Shetty has been quite vocal against the country’s policies and the recent steps that crippled growth in the crypto and blockchain space.

“We would have loved it if the RBI had included crypto, as Indian entrepreneurs would have been able to participate in global blockchain projects like their counterparts in US, EU, Japan and many other countries around the world,” he added.

Threat to financial stability

Angel investor Sanjay Mehta, who has been watching the crypto space for long, said the Indian government sees cryptocurrencies as being disruptive to economic and financial stability and, hence, is imposing arbitrary bans.

“The RBI could have worked on creating a regulation to fulfil the needs of the various business models in the crypto world, instead of imposing a blanket ban.

“All market participants, including ICO issuers, digital exchanges, brokers and dealers involved with digital asset transactions being required to register with the RBI would have been a welcome message,” he added.

Rashmi Deshpande, partner at legal firm Khaitan and Co, said: “The fact is that the government is awaiting Supreme Court’s decision and then may frame regulations accordingly.” Several writs have been filed against the RBI circular banning the country’s banks from dealing with cryptocurrency platforms, and no conclusive hearing has taken place in the apex court so far.

The banking regulator’s negative stance on crypto has crippled the sector, with over a dozen start-ups shutting shop and many either pivoting or moving their businesses overseas.

Zebpay, one of the largest and earliest players, was the first casualty in the sector at a time when prices of Bitcoin and other digital currencies were rising.

According to a Reuters report, Bitcoin prices jumped to its highest on Tuesday in six months. The virtual coin climbed as much as 4.5 per cent in early trading to top $5,600 briefly, touching its highest since November 2018.

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Published on April 24, 2019
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