The Indian central bank’s crackdown on virtual money may drive cryptocurrency exchanges out of the country to more friendly locations.

Earlier this month, the Reserve Bank of India (RBI) issued a directive that, by July 06, lenders must close the bank accounts of firms dealing in cryptocurrencies. Banks are also forbidden from offering loans or other services post-deadline. Essentially, this marks the end of the road for the digital currency-related operations in India.

But the exchanges are not giving up just yet.

“It won’t be possible for us to function in the current regulatory environment with existing business models. Therefore, several firms are looking at registering their head offices out of India,” said Shubham Yadav, co-founder of Coindelta, a cryptocurrency exchange.

These “cryptocurrency-friendly” locations include Singapore, Switzerland, Estonia, Malta, Japan, Dubai, and the Cayman Islands. “This way, we won’t be an India-centric exchange but will become a global player,” the CEO of another virtual exchange company said, declining to divulge the firm’s plans.

The exchanges are also considering a legal challenge to the RBI’s diktat in the supreme court of India. A few are looking to approach the court collectively for a stay on the new rules. Lawyers believe the RBI’s clampdown can be challenged on several counts.

Finding a way out

Till now, investors could buy digital currencies paying in rupees. That ends with the July 06 RBI deadline.

“The current remittance regulations will not allow customers to convert rupees into any other currency and make purchases from an international exchange. Therefore, the only option left will be crypto-to-crypto trade for (the existing) investors that allows you to buy one cryptocurrency in exchange for the other,” said Hesham Rehman, CEO of Bitxoxo, another cryptocurrency exchange. “The other option is buying by paying cash in another nation, which may not be feasible.”

For first-time investors, the only option left will be the peer-to-peer transactions, a system that some exchanges are considering. In this, an exchange’s role is limited only to connecting the buyer and seller of cryptocurrencies, who then take the transaction offline without involving the firm.

But this mode would come with its own set of challenges.

“Trust is an important concern here as these transactions take place between two individuals. It works on the guarantee that you will get the cryptocurrency after giving cash. So there are concerns about frauds or illegal transactions,” explained Nischal Shetty, founder and CEO of WazirX, another Indian cryptocurrency exchange.

Given all this, only the bigger Indian cryptocurrency firms will survive.

“Shifting the operation to another country is an expensive as well as taxing proposition. Similarly, re-inventing the whole business model also won’t be easy,” said Anirudh Rastogi, managing partner at law firm TRA which represents several bitcoin exchanges in the country. “Therefore, only bigger firms with better financials will find it worthwhile to restructure their businesses and will survive.”