In a boost to cryptocurrencies, the Supreme Court on Wednesday ruled that a 2018 notification by RBI that prohibited financial institutions regulated by it from facilitating trading in digital currencies was unconstitutional. The ruling will allow trading in cryptocurrencies like Bitcoin and Ethereum. The actual start of this open trading may, however, have to await RBI’s formal notification.
The 2018 RBI notification didn’t completely stop trading in cryptocurrencies; it merely drove it under the radar. Bitcoins could be traded by investors using foreign exchanges or over-the-counter trades. The problem for Indian investors was that these currencies could not and still cannot be used on Indian soil to pay for real things in the real world. After the Bitcoin crash in 2017, which ruined many Bitcoin investors, the Indian government warned citizens against investing in cryptocurrencies, terming them ‘Ponzi schemes’.
That viewpoint hasn’t changed yet and there are apprehensions that the Centre may step in to dilute the Supreme Court’s ruling with a ban on cryptocurrencies—either total or partial. The reason for this is two-fold—firstly, the Centre rightly says digital currencies do not have sovereign backing or a stable value unlike sovereign currencies like the rupee or dollar. Secondly, the pricing of these coins are too volatile, giving rise to the belief that trading in them could be akin to placing bets in a game of chance.
In the last year, Bitcoins have risen in value from about Rs2.7 lakh last March to Rs8.46 lakh in July, only to fall to Rs4.69 lakh in December. With the recent judgment, the digital currency has risen to over Rs6.74 lakh. That said, the state also cannot afford to wish cryptocurrencies away. They are here to stay as is trading in them, however volatile such businesses may be. Instead, the Centre could allow well-regulated trading in cryptocurrencies even as it adopts the Garg Committee report advising India to issue its own official cryptocurrency and take advantage of advances in blockchain technology to take us forward towards a more digitally enabled payments system.