Not happy with the recent judgement of the Supreme Court that permitted cryptocurrency trading, the Reserve Bank of India (RBI) is apparently intending to seek a review of the order by the apex court.
The Supreme Court had upheld the rights of the cryptocurrency traders and felt their freedom to pursue an industry of their choice was sought to be curtailed by the circular issued by the RBI in 2018. The decision by the regulator and the government at that time came in the midst of heated debates across the world on whether cryptocurrencies should be legitimised. While some governments recognised, many banned the use of cryptocurrencies for payments etc. In the Indian context, the RBI had put a ban on the banks opening accounts in cryptocurrencies or offering services to those dealing in them including the exchanges that were operating. All of them shifted elsewhere, including to places like Singapore. There is a wide expectation that many may come back to operate here now that the Supreme Court has lifted the ban.
RBI’s concern with digital currencies like bitcoin is that their prices fluctuate wildly putting the investor at great risk. In many developed economies, the gullible public had sold everything to invest in Bitcoin only to see their entire holding in the currency wiped clean one fine day. Such occurrences under RBI’s watch could put the banks in trouble and the regulator will be left firefighting.
After the SC judgement, those engaged in trading in cryptocurrencies in India can resume trading in them and if they approach banks to operate accounts based on these currencies, the banks might not be in a position to refuse, since for all practical purposes, the circular of 2018 has been rendered invalid.
The government is woken up every now and then by scandals involving chit fund operators who lure the common public with promises of high returns and then decamp with the money collected, leaving thousands of already poor people further impoverished. It then becomes a political hot potato. The government looked at cryptocurrencies as another such scheme where a lot of people will be attracted by the returns they can get if they invested in it. It is true that the price of Bitcoin went up to $20,000 a unit, but it crashed to around $7,000 in a matter of days. It might have risen again a little later, but that one experience was enough to scare away a number of knowledgeable investors.
The Income Tax department is also separately looking at around 500,000 persons said to have invested in cryptocurrencies. There were even rumours in 2016 during the time of demonetisation that many people converted their ill-gotten cash into cryptocurrencies, though it has not been established so far.