RBI regulated entities barred from dealing with cryptoexchanges

LocalBitcoins | This peer-to-peer exchange allows people from different countries to exchange their local currencies to bitcoins. Users post advertisements on the exchange stating their exchange rate and preferred payment method for buying or selling bitcoins. By replying to these advertisements, a trade is opened and escrow protection is automatically activated. Escrow protects both buyer and seller, by keeping the bitcoins safe until the payment is done and the seller releases bitcoins to the buyer. Bitcoins are placed in LocalBitcoins web wallet from where one can pay for their bitcoin purchases directly. However, investors need to be aware of scams as they are dealing directly with other people unlike other stock-like exchanges or centralized bitcoin trading sites.

Going ahead you will not be able to buy cryptocurrency via banks or e-wallets etc in India as the Reserve Bank of India (RBI) has effectively banned such entities from "dealing with or providing services to any individuals or business entities dealing with or settling virtual currencies".

“Virtual currencies (VCs), also variously referred to as cryptocurrencies and cryptoassets, raise concerns of consumer protection, market integrity and money laundering, among others,” the central bank said in a statement.

RBI asserted that it has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. “It has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs,” it said.

Regulated entities that provide such services “shall exit the relationship within a specified time”, RBI said adding that it will issue another circular for it.

In a move to regulate the cryptocurrency market in India, Finance Minister Arun Jaitley clarified in his Budget speech it is not legal tender and the government will discourage its use. However, he had mentioned that the government will look at the utilisation of blockchain technology.

There has been rising craze among investors to put in their hard-earned money into the highly volatile cryptocurrency market setting off alarm bells in the government.

Digital currency, led by the Bitcoin, which has been the most popular among the plethora of options, has gained immense popularity globally. However, the underlying assets have been highly volatile with price movements swinging wildly on news flow.

Globally, there has been a move to clamp down on crypto trading, with countries such as South Korea banning anonymous trade in such currency.

There have also been issues on safety of investors’ accounts against hackers. There have been several instances where accounts of investors have been hacked into by criminal elements who have fled with investor wealth. Currently, there is no way to retrieve such money lost to hackers.