The Supreme Court of India’s ruling overturning the Reserve Bank of India’s (RBI) ban on offering banking services to cryptocurrency transactions is a positive move for the industry. The RBI ban imposed in April 2018 throttled a wide range of cryptocurrency-based activity in India, for almost two years.
Cryptocurrency trading was not banned and peer-to-peer trading continued even after the RBI’s circular .However, the central bank prohibited banks from cryptocurrency-based activity, and did not allow access, flow and use of fiat currency for crypto transactions. This was a big deterrent. Many companies, financial institutions, and exchanges dealing with cryptos had their bank accounts closed, terminated or deactivated in the last two years. One bank went to the extent of deactivating individuals’ accounts by analysing their account transaction activity and linking them with crypto transactions.
Trading and speculation has and still remains the primary activity that people engage in when it comes to cryptocurrencies in India. Prior to the RBI ban, an estimated 5 million people traded in cryptos across 25 to 30 exchanges present in India then. During the peak, an estimated 250,000 people were signing up every month across in India. Globally, one out of every 10 crypto trades were from India.
In the last two years the number of cryptocurrency exchanges fell to seven and with only peer-to-peer crypto-based trading allowed, the volumes decreased significantly. With the latest apex court ruling, the activity is expected to return or even surpass the pre-RBI ban levels. Two of the Indian tokens WRX (WazirX) and MATIC (Matic Network) have already witnessed significant rise in price and trading volumes in the last couple of days.
After the bull run of 2017 and early 2018 globally, cryptocurrencies have lost the sheen among non-serious individual traders and speculators as many countries, specifically China (which led the world in crypto trades and volumes), curtailed cryptocurrencies trading through regulations and/or bans. The bear run in 2018 and 2019 saw the various cryptocurrencies lose their value significantly, with Bitcoin (BTC) plunging to one-fourth of its peak value.
The volatility and fluid nature of crypto prices also led to the emergence of stablecoins — new class of cryptocurrencies that attempts to offer price stability and are backed by a reserve (stable) asset such as fiat currency, precious metal or an exchange-traded commodity. The general sentiment and enthusiasm has been lacklustre around cryptos in the last couple of years.
India is a big and significant market in the global crypto ecosystem. The average cryptocurrencies sentiment has been steadily growing since December (up 55 percent), and the court ruling has provided (an average) 5 percent rise in the crypto prices across the board. We are going through a phase of cautious optimism with regards to cryptos globally.
Apart from trading and speculation, cryptocurrencies are used for a number of actual, real-world applications. There are over 3,000 DApps (Decentralised Applications — applications built on Blockchain technology), some of them requiring cryptos for transactions.
For instance, STEEM (a social Blockchain that grows communities and makes immediate revenue streams possible for users by rewarding them for sharing content) provides a platform for Blockchain developers to build DApps on it (three of the world’s Top 5 DApps are based on STEEM platform). For people to buy tokens, and transact on these DApps, cryptos are a must, and crypto-exchanges are the first point of contact for them to by the currencies. In the last two years, since the RBI ban, serious and mature crypto enthusiasts had no option to transact with the DApps. With the Supreme Court ruling, this activity has been reopened for crypto enthusiasts.
Also, now thanks to the ruling, Indian Blockchain-based product and platform companies, with a tokenisation strategy, need not register outside India for easy access to funds. Individual investors and venture capitalists can now invest in credible Indian Blockchain and crypto-based companies.
The court ruling opens up a number of opportunities for cryptocurrencies based activities in India. Although the industry needs a number of regulations such as tax regulations, ICO (Initial Coin Offerings) guidelines and regulations, and most importantly, anti-money laundering regulations, this is an industry whose time is fast approaching.
It is about time the governments, regulators and lawmakers around the world spend requisite time and effort in understanding this new-age currency, instead of knee-jerk reactions and blanket bans.Jayanth Kolla is Partner, Convergence Catalyst. Views are personal.