Cryptocurrency firms weigh shifting overseas, legal options after RBI crackdown

Indian cryptocurrency exchanges are considering moving their operations outside the country and other options to carry on trading after the Reserve Bank of India barred banks and other entities that it regulates from having anything to do with virtual currencies.

The RBI's crackdown last week will make it almost impossible for more than a dozen cryptocurrency exchanges such as Zebpay and Unocoin to operate in the country. While some are planning to move their base outside India, a few such as WazirX are weighing mounting a legal challenge to the RBI's decision.

Executives at most cryptocurrency exchanges TechCircle reached out to for comments maintained silence four days after the RBI move, but some industry executives explained the options these companies have left and a few pointed out the loopholes that can still be used to trade in bitcoins and other digital currencies.

"Crypto-exchanges becoming a global organisation and not using fiat currencies seems the most logical option,” Praveen Kumar, CEO at Kuala Lumpur-headquartered cryptocurrecy startup Belfrics, told TechCircle. Also, if any exchange opens an offshore account and lets users trade in foreign currencies, there should be no legal issues, he added. 

Kumar said that once the exchanges are outside the RBI jurisdiction, they aren’t answerable for the money coming into their accounts, although an Indian citizen might be.

Kumar also pointed to a loophole in the law. "Any citizen can send in as much foreign money into the country. But in terms of sending out, there is a cap under the Liberalised Remittance Scheme (LRS) at $200,000 (Rs 1.2 crore) for an individual. However, the LRS doesn't include cryptocurrencies as of now and this means that a person can first convert money and then trade currencies via a foreign exchange," he explained.

Kumar said that just four months before the RBI directive, banks had shut down several accounts of crypto-exhanges in India. "While several Indian exchanges that had their bank accounts suspended cried foul saying no law barred their operations, we chose to stop our operations in India," he said.

The Economic Times cited Shivam Thakral, CEO of BuyUcoin, as saying that the company will have to move to a foreign country where regulations allow opening of bank accounts.

Another industry executive, who has been running crypto-exchanges in multiple geographies, told TechCircle on the condition of anonymity that since the RBI order, a lot of Indian owners of virtual coins have transferred their balance to foreign exchanges. “Our company has seen more than 300 Indians transferring money to our own exchange in other geographies," the executive said.

This executive said the RBI hasn't imposed a complete ban on virtual currencies, nor does it wish to. "A complete ban would upset the public blockchain projects that India is undertaking as all the projects have to either run on Bitcoin, Ethereum or Ripple. In that case, no company working in the public deployment of blockchain could continue operations legally," he said.

Meanwhile, crypto-exchange Zebpay issued an advisory saying: "Sudden disruption in banking services could affect our ability to service deposits and withdrawals, until banking services are restored."

Separately, Nischal Shetty, founder of WazirX, indicated considering legal options against the RBI move and tagged Varun Sethi, a blockchain lawyer who uses the handle @blockchainlaw91.

Sethi tweeted that a signature campaign was being started against the RBI decision and that a Right to Information application has been filed seeking to know the reasons behind the central bank's move.

In another key update :
We have filed a Right to Information Application with #RBI asking them to justify their move of restricting banks from offering services to #Crypto users.#RTI #rbi #cryptocurrencies #india pic.twitter.com/FHIsRshXy1

— Blockchain Lawyer (@Blockchainlaw91) April 8, 2018

While cryptocurrency exchanges explore survival options, many are likely to see a fall in trading. "This will give rise to more peer-to-peer buying and selling of cryptocurrencies in India," Kumar said.