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RBI recently put out a circular forbidding entities it regulates from dealing with cryptocurrencies. Photo: Mint
RBI recently put out a circular forbidding entities it regulates from dealing with cryptocurrencies. Photo: Mint

RBI clampdown puts cryptocurrency traders, exchanges in a spot

RBI's decision, which was aimed largely at protecting interests of consumers, caused panic selling among crypto investors, traders in India

Bengaluru: The Reserve Bank of India’s (RBI) recent crackdown on cryptocurrencies has left investors, traders, and crypto exchanges in a fix, prompting them to tap alternative means to convert their cryptocurrency into rupees and exposing them to the risk of losing their holdings, experts said.

RBI recently put out a circular forbidding entities it regulates from dealing with cryptocurrencies. Banks were given three months to settle all outstanding payments to crypto exchanges in India.

While RBI’s decision was aimed largely at protecting the interests of consumers, the directive caused panic selling among crypto investors and traders in India. Exchanges in the country started exploring opportunities to register outside India to carry on trading.

Nischal Shetty, chief executive of cryptocurrency exchange WazirX, said India’s decision didn’t affect the international market, but the domestic market saw a temporary slowdown.

“The day of the RBI announcement we saw about a 4X increase in our volumes. There was heavy panic selling. However, the international markets did not budge with this India news and within a day, the markets in India bounced back to being normal," Shetty said.

Rahul Raj, co-founder of another exchange named Koinex, said RBI’s decision caused a huge disruption in the domestic market.

“In such a precarious situation, users will be lured by grey market tactics to liquidate their digital assets and we fear that it will lead to small trade involving direct cash transactions between peers, leading to huge black market wherein people are forced to privately exchange coins for hard cash," Raj said in an email.

Mohit Mamoria, chief executive of Authorito Capital, said RBI’s intervention was equal to a demonetization moment for crypto funds. Authorito Capital is a crypto fund based out of California, which invests in blockchain ideas.

According to Harsh Agarwal, chief executive of cryptocurrency advisory platform CoinSutra, many traders are moving to peer-to-peer (P2P) sites such as to exchange coins for the local currency. On these sites, the coin holder agrees to sell his coins online for a rate quoted by an anonymous buyer. The rates may not be based on current market trends.

Apart from cryptocurrency traders, RBI’s intervention may also hit crypto miners, and developers working to build products around blockchain and cryptocurrencies. Miners are an essential part of popular coins like Bitcoin, Litecoin, and Dogecoin, since they validate transactions on the public ledger or a blockchain. Miners are given coins for validating each successful transaction.

All cryptocurrencies are built on top of blockchain technology. Currencies are just one way to use blockchain technology, among other examples such as shared power grids and decentralized management of public land records.

Developers working with crypto exchanges and blockchain firms in India may also be affected.

“This lull in the market has also affected operational costs which bear heavy on the company…So we are looking to restructure our resource pool in such a way that we can accommodate the workload on the exchange and at the same time also utilize them on the slew of other blockchain products underway," Koinex’s Raj said.

According to Mathew Chacko, Partner atSpice Route Legal, crypto miners and developers are aged between 25 and 30 years, and have already spent a lot of time and money building a career around blockchain technology. “I think crypto miners and developers may come together and approach courts on what appear to be legitimate grounds raising various constitutional challenges to the regulatory action," Chacko said in a phone interview.

A study released by online job platform Indeed said that the number of cryptocurrency and blockchain related jobs posted on the Indeed website rose by 290% in the latter half of 2017, with Bengaluru emerging as the top city.

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