In a historic verdict, India’s Supreme Court on Wednesday lifted the RBI’s two yearlong ban on cryptocurrency trading. The apex court based its verdict on the disproportionate nature of the central bank’s imposed prohibition from 2018. However, RBI is planning to seek a review of the decision, claiming that involving cryptocurrencies in the mix will be precarious to the banking system of the country.
In April 2018, RBI had directed its entities, regulated by the bank to not deal in virtual currencies or provide services to businesses or individuals facilitating the trade of virtual currencies. It had also issued circulars cautioning users, holders and traders of virtual currencies, going to the extent of calling the whole industry a ponzi scheme. The ruling effectively choked the thriving cryptocurrency exchanges in the country that were adding up to 300,000 new customers each month. It also caused several cryptocurrency platforms to move out of the country and seek refuge abroads, like Singapore, which saw a huge influx of Indian cryptocurrency companies.
Before those companies could return, RBI made it clear that the route back home won’t be as smooth as they were expecting. The biggest banking entity in the country fears that virtual currencies will put the banking system of the country in jeopardy. However, it failed to provide evidence to support this claim in court.
The reason why RBI is so hell bent on banning these virtual currencies is simple, it fears that the platform’s powers extend beyond the regulation of any entity and that may pose a threat to the economic system of the country. Other entities around the world fall prey to similar fears, as the privacy of the transactions might be cantankerous to the established banking systems. Moreover, these currencies can be used for illegal purposes because of the private nature of transactions, thus escalating the stigma around the technology even more.
The RBI, during the litigation clarified that while it had banned banks from transacting in cryptocurrency, the currencies themselves were not banned. This was however challenged in court using multiple cases of shut down businesses and startups as a result of the ban. Other arguments included the notion that cryptocurrencies do not amount to money but instead constitute goods. It was thus argued that the RBI had no business regulating transfer of goods. The court, after rejecting technical legal objections, pressed on the fact that the central court showed no semblance of any damage suffered by its regulated entities. The entire argument of the court however rests on one aspect: the sheer lack of evidence of demonstrated harm to the banking sector or other regulated entities.
Even if the rehearing does not go to RBI’s favour, there’s a big chance that regulation may be implemented alongside documentation as proof. While cryptocurrency companies might see a glimmer of hope, sunrise is still long ways down the road.