It’s been nearly 6 months since the RBI imposed a ban on cryptocurrencies businesses using fiat and banking channels. Since the exchanges and business have modified their business models mostly to peer to peer model and have stayed in a non-supportive regulatory environment. Survival like this looked tough and now we have the first victim who has fallen prey to this ban. Zebpay, one of India’s biggest cryptocurrency exchanges, has announced the shuttering of all exchange services on Friday.
Zebpay- a strong player that “dies” the regulatory death
As cryptocurrencies became a buzzword around the globe, Indians too got interested and the citizens started looking for places to buy cryptocurrencies. Taking advantage of this growing curiosity, Zebpay thought of making the first move. Launched in 2015, Zebpay started trading with an app-only service that quickly became one of India’s most-downloaded bitcoin wallet and exchange apps. With a know your customer (KYC) model, Zebpay struck half a million downloads on Android – the country’s most popular smartphone platform – in mid-2017 and quickly doubled to hit a million app downloads during 2017’s bear run in October. The company forecasted up to half a million new users joining the platform every month at the time, up from 200,000 new users already joining the platform.
While all looked going superbly for the exchange, the Reserve Bank of India, On April 6, RBI issued Circular DBR.No.BP.BC.104 /08.13.102/2017-18, banning all banks and financial institutions under its control from providing services to cryptocurrency companies. This circular gave a 3-month deadline for crypto business and banks to comply. As the due date approached, in July this year Zebpay warned its customers this week that their “rupee withdrawals could stop,” citing RBI’s order. The exchange wrote:
“ If Zebpay bank accounts are disrupted, rupee deposits and withdrawals will become impossible…[However] Crypto deposits and withdrawals are continuing as usual. The RBI circular only talks to banks, and other regulated entities about shutting accounts. This doesn’t affect BTC and other cryptos.”
Having launched a crypto-to-crypto trading service in April, Zebpay still announced that it would “continue offering crypto-to-crypto trading.”
The exchange also clarified,
“Our present intention is to allow crypto-INR pairs to trade even after our bank accounts shut [down].” Nonetheless, it warned, “we are unable to fathom all the consequences of the bank account shutting [down] and hence cannot guarantee that we will continue the crypto-INR trade pairs forever.”
As all awaited the decision, things seem to have got off the hand of Zebpay and it has to succumb to the policy paralysis for the cryptocurrency. In the closure announcement, Zebpay said,
“The curb on bank accounts has crippled our, and our customer’s, ability to transact business meaningfully. At this point, we are unable to find a reasonable way to conduct the cryptocurrency exchange business”
We are stopping our exchange. At 4 PM today, we will cancel unexecuted orders & credit your coins to your Zebpay wallet. No new orders will be accepted. The Zebpay wallet will work even after the exchange stops.
— zebpay (@zebpay) September 28, 2018
The RBI crypto tussle timelines- The long battle awaits the decision
The matter of this crypto ban has been in the Apex court of India and is still awaiting discussion. The battle has been a year-long one, but it still awaits a decision. Following has been the timeline and events of the battle between the country’s regulator and crypto business’s (as available on Indian mainstream media mouthpiece Financial Express)
Here’s what has happened so far:
- After October last year, Bitcoin, the most popular cryptocurrency began gaining value. Between October and December, Bitcoin rose from $5,000 to about $20,000. This led to a lot of buzz, even gaining the attention of authorities.
- In November 2017, a lawyer named Dwaipayan Bhowmick filed a Public Interest Litigation (PIL) seeking regulation on cryptocurrencies.
- Between December and February, the government reiterated several times that cryptocurrencies were not legal tender. In Budget 2018, Finance Minister Arun Jaitley said again the government did not consider cryptocurrencies as legal tender and would do everything to eliminate the creation of crypto assets.
- On April 5, the RBI asked entities regulated by it to terminate their business relationships with firms and individuals dealing in cryptocurrencies. “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. Regulated entities which already provide such services shall exit the relationship within a specified time,” the RBI said. The RBI set the last date for ceasing all such relationship on July 5.
- In April, Ahmedabad-based Kali Digital Eco-Systems, which runs the crypto exchange CoinRecoil moved the Delhi High Court challenging the RBI’s virtual ban.
Later, a number of petitions were filed against the RBI decision, the Supreme Court stepped in and said that it will hear a clutch of petitions together.
- On May 11, the apex court issued a notice to the RBI and the central government to respond to the petitions.
- On July 3, the Supreme Court refused to grant interim relief to cryptocurrency players.
- From July 6, the RBI ban kicked-in.
- On July 20, the RBI stood by its decision of virtual ban. It told the Supreme Court that cryptocurrencies are immune from state regulation, cannot be regulated and will lead to illegal transactions.
The RBI and the central government asked for three week time for filing responses to petitions. The next date for the hearing was set for September 11.
- On September 11, the matter was postponed to September 12 for hearing due to lack of time before the SC bench.
- On September 12, RBI once again reiterated that cryptocurrencies cannot be considered valid currency or money under the existing legal system. The hearing was postponed as many of the responders, except for the RBI, were not able to file their responses.
With Zebpay shutting down, things seem to be going from bad to worst for crypto business in the country. The apex court will have to consider this calamity and act fast or things would just end on a sad note for cryptocurrency in the country.
Will the apex court action in favor of cryptocurrencies or will this be the death of cryptocurrencies in the second most populous country in the world? Do let us know your views on the same.
Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.