On Thursday, the Reserve Bank of India mandated banks, e-wallets, and payment gateway providers to withdraw support for cryptocurrency exchanges and other businesses dealing with virtual currencies in India.
"Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies". The statement also said that detailed instructions will be issued in this regard within one week. Some interpreted the release as only an obligation on regulated entities meaning the RBI had not banned crypto currencies yet. "These operators are required to stop having a business relationship with the entities dealing with virtual currencies forthwith and unwind the existing relationships within three months", Kanungo said. The report will be submitted by the end of June 2018. Before Thursday's statement, the Indian government had issued warnings about the risk associated with trading.
The move has been taken to protect banks and non-banking entities from crypto-fraud that poses a serious threat to the stability of India's economy.
"Several central banks are debating the possibility of introducing a fiat digital currency".
In its press release, the RBI noted that it has contemplated introducing a fiat-based digital currency that is fully regulated.
This could slow down exchange operations in the country significantly, potentially bringing the cryptocurrency market to a crawl. "More Indian crypto exchanges and traders might also see moving to other countries as a viable option in the coming days", said Hesham Rehman, CEO and co-founder of Bitxoxo, speaking to The New Indian Express.
Nischal Shetty, CEO of WazirX, a Bitcoin and crytocurrency exchange said: "Blockchain technology and cryptocurrencies are going to define the future of financial technology and the way money operates".
Unsurprisingly, the RBI positions itself as merely looking out for consumers' interests, while also citing the frequently used claims that cryptocurrencies are simply tools for criminals and those looking to undermine market integrity.
When examining both the RBI's press release banning dealing with cryptocurrencies and the Deputy Governor's statement, it isn't hard to connect the dots.
Indian authorities stopped short of a total ban on digital currencies. In fact, the bank has even added that it is planning on releasinng their own cryptocurrency. "They will be in circulation in addition to the paper currency that we have".