Indian cryptocurrency exchanges have not lost all hope though the Reserve Bank of India last week directed regulated bodies, including universal banks, to cut all ties with entities and individuals associated with crypto or digital currencies.

The companies or exchanges dealing with cryptos, such as Unocoin, Zebpay, Bitcoin India and Koinex, have been assuring investors — through e-mails and on social media — that the issues will be resolved soon and that investors in cryptos need not worry about their money.

Unocoin founder Sathvik V sent out e-mails to all users asking them not to panic, as the RBI notification does not talk about the legality of cryptos in India.

“We just want to assure you that your funds (INR, BTC and other cryptos) are absolutely safe with us as ever and there is no need to worry about their safety. As always, you can continue to use our platform as before and, if need be, you can still withdraw your funds,” Sathvik said.

‘Just a speed bump’

Sandeep Goenka, co-founder of Zebpay, the largest crypto exchange in India, tweeted: “India has an excellent bureaucracy. Will continue to work closely to better explain that bitcoins and digital assets can make India a fintech powerhouse. Just a speed bump in a long and exciting journey.”

A day after the RBI’s decision, Rahul Raj, founder of exchange Koinex, said that as the RBI has not termed cryptocurrencies ‘illegal’ in its directive, the tokens are still a valuable asset.

Raj, in a blog on the company’s website, said the RBI has also given banks three months to settle all the accounts, besides allowing the crypto industry to come together and initiate a dialogue with the relevant stakeholders and regulators.

“We are reaching out to the industry stalwarts across all departments for advice and support and will make a concerted effort to sail our way through this storm,” he added as thousands of investors remained anxious about losing their money due to the ban.

The RBI has been cautioning investors against cryptocurrencies ever since they entered the Indian market as early as 2013.

Over five years, cryptos, especially Bitcoin, have been gaining popularity, with lakhs of people investing in them as an alternative to equities, as the former has given multi-fold returns.

Meanwhile, exchanges dealing with cryptos have also mushroomed. Tracxn data suggest there are about 55 such exchanges in the country.

However, many downed shutters after Finance Minister Arun Jaitley, in his Budget speech in February, called them “not a legal tender”, and banks cut ties with them.

Jaitley apparently took the stance following reports of ponzi schemes and money laundering activities being carried out via cryptos.

However, neither the RBI nor the Centre has given any statistics or data on the money laundering part so far.

Irrational step?

Many crypto and financial experts in India have termed the RBI’s decision a “mistake” and an “irrational step”.

For instance, Grex founder Manish Sharma said the RBI should have come out with enabling guidelines rather than banning the exchanges that were keeping track of investors and storing the data.

He feared that RBI may not be able to crack down on crypto P2P (person to person) platforms performing illegal transactions — the holdings can be liquidated at exchanges in countries where they are legal.

Kunal Nadwani, a Blockchain expert and founder of uTrade Solutions, said the ban will lead to some unintended but foreseeable illegitimate consequences. Crypto exchanges may move to the cash/parallel economy, and become harder to track and regulate, he said, adding that people may take their crypto currencies to a foreign jurisdiction and withdraw or spend them there, leading to potential violation of FEMA (Foreign Exchange Management Act).

Decentralised system

He said cryptocurrencies were invented after the 2008 Lehman crisis, in an attempt to find a decentralised and efficient economic system.

“Discouraging such new technology initiatives in India can leave it behind from the perspective of future innovations that may come from crypto currencies,” Nadwani said, adding that countries like Switzerland, the UK, Estonia, France and Japan are wooing crypto-related businesses to set up office in their jurisdictions, offering them incubation and open policies.

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