Can P2P be the future of crypto-rupee trading in India?

After the central bank banned banks from servicing crypto exchanges, a few of them moved to P2P platforms to enable crypto-rupee trading. Shaikh Zoaib Saleem asks experts if P2P is the future for such trades

Himanish Chaudhuri, partner, Deloitte India

Regulations around crypto need to evolve

In the wake of Reserve Bank of India’s (RBI) directive to banks and other RBI-regulated entities to suspend all transactions with crypto exchanges, effective 5 July 2018, crypto-rupee trades have taken a hit. We have been witnessing a few alternative practices in the Indian market, where peer-to-peer or P2P models are adapted to make crypto transactions possible.

It is pertinent to note that the committee constituted by the finance ministry to develop a framework to regulate crypto currencies is expected to come out with its report in July.

While the industry in India has started responding with alternate models to deal in crypto currencies, they should ensure that these models do not violate the regulations in any manner.

Currently, the regulatory environment is still emerging and it will be important to watch the developments in the committee report.

Globally, as well, there are varied regulations on crypto currencies ranging from non-acceptance to conditional acceptance. Hence, the regulatory framework needs to evolve to clearly define the level of acceptance and need to be comprehensive enough to clearly articulate the expectations from banks and financial institutions, crypto currency exchanges, fintech companies evolving in the industry and, last but not the least, protection of investors.

Rashmi Deshpande, Associate Partner, Khaitan & Co

Govt unlikely to make crypto assets illegal

The crypto currency market in India has grown by leaps and bounds in the last few years. Even though trading in virtual currencies has reached $3.5 billion worth of transactions, there is still lack of a legal framework to regulate the market.

In India, crypto currencies are not recognised as legal tenders by the RBI but so far there is no law that has declared them “illegal” despite. The recent RBI ban, a drastic move, has undoubtedly made the exchanges knock on the doors of courts and question the constitutional validity of the circular. The matter is being closely monitored by not only the exchanges but also traders and the government.

In the meanwhile, there have been announcements by the finance ministry to introduce a regulatory framework for the sector. It seems unlikely that the government will altogether declare the currencies illegal, considering the high stakes involved. Nonetheless, the proposed regulations could be stringent given RBI’s move. Since the sector has enormous capacity to generate revenue in the form of taxes, if regulated properly, the need of the hour is to bring in an effective rather than a regressive framework. The recent spate of frauds in virtual currency transactions can be reduced if regulations provide proper checks and balances, thus bringing the sector under the legal umbrella.

Ashish Singhal, Co-Founder and CEO of CoinSwitch.co

P2P mode just a quick fix, has no future

Following the ban on crypto currency by the RBI, the P2P mode of transactions has emerged as a commercially viable option for the burgeoning crypto traders and investors. However, the P2P variant could only be an interim solution, and wouldn’t define the future of crypto trading and investment in India.

P2P is still in the grey area as per the RBI circular, which barred not just companies but also individuals who are involved in the purchase and sale of crypto using RBI-regulated entities, such as banks. Even in the case of direct transfers among peers, where the exchange would typically act like an escrow, gives rise to later challenges during financial audits.

We consider the P2P mode of crypto trading as a quick fix, following the RBI ban. The RBI and the government of India need to come up with stronger regulations that would safeguard the interests of the users, while allowing exchanges to thrive and yet curb the problems of money laundering and other illegal activities being carried out via crypto trading.

Most crypto companies have already implemented AML (anti money laundering) and KYC (know your customer) guidelines and are willing to work with the authorities to have necessary regulations in place. However, a blanket ban will only restrict ambitious investors, and push them to adopt means that are not conducive in the long run.

Nischal Shetty, founder and CEO, WazirX

Investors left with no choice but to use P2P

With the current RBI ban in place, people have no other alternative but to use P2P. We were forced to think outside the box due to the ban and realised a great P2P experience will help people to continue investing in cryptos.

It is also interesting to note that P2P transfers have existed for a long time now, but they were often reduced to classified sites. That posed serious threats, since anybody, even miscreants, could trade on such sites.

But driven with a vision of creating the most secure crypto platform in India, we infused e-KYC and AML guidelines in P2P transactions. Before allowing someone to trade, we verify their email, mobile number, identity, and PAN (permanent account number) card number. We also keep a record of every transaction on the exchange.

We’re seeing orders worth many lakhs every day in less than a week of starting WazirX P2P. Looking at the response, it seems like we’ll be seeing more money flowing in crypto trading through P2P transfers as compared to the previous alternative of bank transfers.

In the long run, I see both P2P and direct bank transfers being active for different use cases. In many cases, P2P may end up being a faster way to withdraw funds as buyers transfer money immediately and directly to the seller. Exchanges traditionally still take a longer time to process withdrawals.