Indians are slowly turning to illegal trading of Bitcoin in the black market after the RBI (Reserve Bank of India) directed banks not to support entities dealing with virtual currencies. This is slowly creating a parallel economy since it doesn’t come under the banking channel to track transactions.

RBI Ban

On 5th April 2018, RBI released its monetary policy for 2018. In that, it mentioned that the financial institutions coming under their control shall wrap up their support to crypto exchanges, and individuals dealing with cryptocurrencies within three months. This has created shock waves across the nation since the investors and traders cannot use the normal banking channel to trade Bitcoins and other cryptocurrencies.

Crypto exchanges are the worst hit, since without a payment channel, it would be nearly impossible to continue their business. Millions of people who invested in cryptocurrencies were forced to hold a dead asset, since it is impossible to liquidate to Indian Rupees (INR) and can only depend on OTC (Over the counter) methods to sell their coins.

Investors Left in the Dark

Many cryptocurrency investors were left in the dark, without any clarity, and this created a huge confusion among people who planned to liquidate their holdings after the bear cycle ends. Cryptocurrency investors who bought during the December bull cycle are now at a loss, and they need to hold it till the markets turn bullish. But the RBI has given only 3 months for banks to support exchanges; after that, only cash transaction are permitted.

Economic Secretary Subhash Chandra Garg clearly mentioned that the traders can continue their trading using cash, and only banking channels have been closed and wont support anyone dealing with cryptocurrencies. It is little weird since the government announced a “War on Cash” and demonetized the higher denomination notes in 2016 November. However, the same government is now encouraging people to use cash to buy cryptocurrencies. This is against the Indian Prime Minister Narendra Modi’s vision of “Digital India.”

Exchanges Fighting Back

Exchanges are fighting back and also negotiating with the government to convince them to revoke the ban. Also, they are trying to adjust their business model from Crypto-Fiat to Crypto-Crypto trading. Exchanges are in no mood to give up and want to fight until the end. Below is a tweet from the Founder of one of the biggest exchanges in India – Zebpay.

“We started Zebpay to bring bitcoins to a billion Indians. Lots of work still pending” “India has an excellent bureaucracy. Will continue to work closely to better explain that bitcoins and digital assets can make India a fintech powerhouse. Just a speed bump in a long and exciting journey.”

This does not end here. Coinomi exchange introduced new crypto pairs, and a new exchange Coindcx just started last week and one more big exchange Bitindia is going to start their operations soon. All of them are optimistic about the government revoking the ban within 3 months. There is also rumor surfacing in the Indian telegram groups that the government wanted a “Piece of the Pie” from the exchanges’ profit that they declined, thus leading to the ban.

People are hoping that the Indian exchanges will be working closely with the bureaucracy to quickly revoke this ban. That is what Sandeep has sarcastically said in his tweet “India has an excellent bureaucracy”.

JailBreaking the RBI Ban

Indians are currently researching and finding out the different methods to JailBreak this ban so that they can liquidate their holdings at any time, even after 3 months when the full banking ban will come into place. Indian Telegram groups have become the discussion forums for sharing ideas that would help people to get clarity on the different ways in liquidating their digital assets.

Some of the other ways to trade cryptocurrencies are by trading peer-to-peer using local bitcoin and Instashift. Both provide peer-to-peer trading and traders can buy/sell their coins with one another.

Bitcoin and other cryptocurrencies are decentralized and cannot be confiscated. They are censorship resistant and it is nearly impossible to ban them. Government and banks are finding it very difficult to regulate them due to the above-mentioned qualities.

As Andreas Antonopolous has famously said,

“In order to ban bitcoin, governments will have to shut down the internet and its very unlikely that any country would resort to that level”

Indians trading illegally in Black Market

After the RBI announced the ban, many Indians have started to deal with cash in buying/selling Bitcoins. RBI’s decision has created a black market in many parts of the country in which the traders buy/sell crypto for huge cash without paying appropriate tax to the government. Previously, traders were forced to give their KYC and PAN details and since they were transacting with banks, every transaction was tracked and taxed accordingly.

Crypto exchanges even went one step ahead in reporting to the government about all the Bitcoin transactions done through their platform. Strict KYC norms were followed and the exchanges were ensuring that they were doing everything right to generate more income for the government. But now, few reports have come up with bad actors buying a huge amount of Bitcoins to the tune of few hundred crores (hundreds of thousands of dollars) secretly.

Reports are surfacing on Twitter about many illegal trading schemes going on in different parts of India. Below are some of the tweets from Niyati Khanna – a Crypto Entrepreneur who has made a few secret crypto-trading activities public.

“In Bombay, Tardeo is the hub for BTC cash deals. One search and you get upto 100 dealers. Each capable to dole out minimum 25 lacs to 50 cr Rs cash. But you won’t catch them. Instead ban the legit people and exchanges.” “In Chennai, within last 24 hrs about Rs 78 cr cash deals were made for BTC. This is only a fraction of what I know. It takes max an hour to find such people. But you won’t catch them. Instead ban the legit people and companies, like us.” “In Surat you can get Rs 1000 cr cash within an hour for your Bitcoin. A group which does this business has upto 33,000 BTC. If you ask a rickshaw driver there, even he knows where in Katargam, Surat to go to cash out. But you won’t catch them.”

The above revelations are really alarming and the government has to immediately take action to dismantle these illegal trading centers and also revoke the bank ban to allow the trading to happen through proper banking channels. This would make trading more transparent and legitimate. Also, this will generate lot of revenue for the government in terms of collecting tax on profit made in trading crypto.

We also request the government to come up with proper regulations and guidelines to end the confusion in the mind of investors over the legality of cryptocurrencies in the country.

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