Once a thriving industry and an investment option, bitcoin exchanges have shut shop after getting a cold shoulder from central bank, ministry of finance, IT authorities and enforcement directorate.
Mumbai: This week, the Supreme Court (SC) is likely to give its final verdict on the use of banking channels to buy and sell bitcoins on cryptocurrency exchanges. As of now, you can’t use your bank account to buy or sell cryptocurrency from any exchanges in India. But even before the verdict is out, the affected parties have left the battlefield.
Zebpay, one of the largest cryptocurrency exchanges in the country, shut its business on Friday. In an email, the company said, “The curb on bank accounts has crippled our and our customer’s ability to transact business meaningfully. At this point, we are unable to find a reasonable way to conduct the cryptocurrency exchange business."
Ajeet Khurana, chief executive officer, Zebpay, said, “I wrote the final email. We were tired of waiting for the verdict. Whatever comes out of the judgement, it is not a battle to legalise cryptocurrency. This is just the first one. There will be many more to follow. And fighting it out in court is very expensive." For the company, which had opened an office in Mumbai’s Bandra-Kurla Complex with 110 employees just last year, the slide has been in line with bitcoin prices as the company’s revenue continued to decline. In 2017, the cryptocurrency prices peaked to an all-time high of close to $20,000 (₹14.50 lakh). Today it is around $6,513 (₹4.7 lakh), according to data from coinmarketcap.com, a platform that tracks cryptocurrency prices.
In the last one year, multiple agencies have scrutinised the cryptocurrency companies. First, the Income-Tax (I-T) department surveyed bitcoin exchanges to determine taxation on bitcoin investments. Following this, the enforcement directorate conducted a probe to check for violation of the Foreign Exchange Management Act (FEMA). Meanwhile regulators, including the Reserve Bank of India (RBI), the Securities and Exchange Board of India (Sebi) and the ministry of information technology came together to form a regulation on cryptocurrencies, which still doesn’t exist.
To curb transaction, in December 2017, the central bank asked banks not to facilitate any cryptocurrency-related transactions. Hence, most top banks suspended accounts of major bitcoin exchanges in India, which forced bitcoin exchange agencies to tie up with smaller banks. In April this year, RBI put a blanket ban on any cryptocurrency transaction. Meanwhile, the ministry of finance has also formed a committee to look into cryptocurrency.
During the same period, fraud also hit the cryptocurrency exchanges. Coinsecure, another cryptocurrency exchange, lost ₹ 19 crore owing to a case of internal fraud. The company, which had over 30 employees in Delhi and Bangalore, has wound up its operations since then. “I lost a lot of money. I had to take a loan against property to pay back all my customers. After a point, it was unsustainable," said Mohit Kalra, co-founder, Coinsecure. Kalra now works for his father’s business, while exploring options in the overseas market for cryptocurrencies.
Though the closure of operation of the big exchanges has shocked the industry, not everyone has lost hope. Koinex and Unocoin continue to provide cryptocurrency transactions on their platforms. “We are figuring out new ways to do transaction on the trading through rupee," said Satvik Vishwanath, chief executive officer of Unocoin.
Vishwanath trashes the concept that co-operative banks can be used for transactions in cryptocurrencies. “Firstly, co-operative banks are also governed by RBI. Secondly, all these co-operative banks use one of the nationalised banks for NEFT (National Electronic Funds Transfer) transfers since they don’t have the facility," said Vishwanath. Moreover, the Bank of Sikkim, which is not governed by RBI, is not willing to accept cryptocurrency business, he said. “Bank of Sikkim works with Yes Bank Ltd’s platform for transactions. Hence, there is no use of opening a bank account if you can’t make transactions," said Vishwanath.
What this means for you
According to industry experts, more cryptocurrency companies are likely to go down in the coming months considering that their business has been choked. If you are optimistic about bitcoins and want to invest, you don’t have the option to buy it from an exchange right now. Some companies facilitate peer-to-peer transaction. However, given the uncertainty around cryptocurrency, it would be advisable to stay away from it.
If you transact in bitcoins, banks can shut your account
Have you used your bank account to make transactions on bitcoin exchanges? In case you have attempted to buy or sell cryptocurrency, your bank can shut your account, say bankers and experts. “As per the notice issued by RBI, whether you are an individual or an exchange, if you have made a bitcoin-related transaction, that bank account has to be shut," said said Satvik Vishwanath, CEO of Unocoin.
However, he added that banks have not implemented any such thing for individuals yet. “We haven’t heard from our customers that their bank accounts have been shut. The banks didn’t go all the way to shut around 5 million bank accounts. They have only done it for the exchanges," said said Vishwanath. However, according to Ajeet Khurana, CEO of Zebpay, some of their individual customers’ bank accounts have been shut.