Bitcoin has gained tremendous popularity since its launch in 2009, sending ripples across major economies of the world. The cryptocurrency witnessed massive interest among investors, so much so that the price shot up to a whopping $20,000 apiece in 2017, thereafter plummeting and rallying around $10,000 in 2019. The prices saw extreme rallies owing to a strong combination of global investor interest and pure speculation. The block-chain powered currency has sparked several controversies with respect to the lack of global regulation, legality, and potency of misuse.
However, the Reserve Bank of India (RBI) was quick enough to pick the red flags before the Bitcoin“bubble burst”. The biggest problem with Bitcoin, also popularly known as “digital gold” is that it has no collateral-backing, which essentially means that the intrinsic value is zero and the prices are purely based on speculation. Moreover, there are no guidelines or regulations governing the trading and use of the virtual currency as a legal tender.
The Indian central bank sent out multiple public warnings and caution notices regarding the risks associated with Bitcoin and eventually enforced a ban on Bitcoin trading in India vide a notification on April 6, 2018. Thereafter, a blanket ban on cryptocurrencies was planned with a draft policy “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019” and is under process.
ETBFSI had earlier reported that the RBI had called for a banking restriction on all financial institutions offering services to cryptocurrency exchanges, that led many Indian startups — Bitcoin India, Koinex, Zebpay — to close operations or moved outside India or launched P2P platforms to sustain.
Does the virtual currency need regulatory support rather than an outright ban? The use of virtual currency can bring a sea change in the way transactions take place in an economy. The advantages seem to outweigh the risks associated with the use of virtual currency when brought under a regulatory framework of the RBI and SEBI. The blockchain technology would allow secure P2P transactions and could be easily monitored by the regulators. On the other hand, SEBI regulated virtual currency exchanges may be established to regulate the market movements and trading activities associated with the crypto-currencies. Further, the use of virtual currencies would lower transaction costs and could potentially eliminate the need of paper currency, thereby boosting efficiency in the monetary system.