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Leading cryptocurrency exchanges in their recent consultation with the government have asked for the Securities and Exchange Board of India (SEBI) to regulate the sector, citing that cryptocurrencies are traded more as commodities than used as currencies. Cryptocurrency exchanges claim that virtual currencies such as Bitcoin and Ethereum are not currencies and, therefore, should not be regulated by the RBI. They are classified as commodities and, therefore, should fall under the purview of SEBI.
According to experts cryptocurrencies can broadly be classified under four heads. One is currency, which is meant to be used as a mode of payment. The second type is an asset. For example, Bitcoin and Ethereum are considered more as commodities for investing money. The third can be a utility token that is designed to be spent within a certain blockchain ecosystem. The fourth is security which refers to assets that can be traded just like bonds and shares.
Recently, after the nudging from the Reserve Bank, many banks asked their payment gateway operators to stop net banking and other services for merchants trading in cryptocurrencies directly or indirectly. The banks have stopped offering services even after the Supreme Court last year in March set aside the Reserve Bank of India (RBI) circular dated April 6, 2018, which banned cryptocurrency trading in India.
Many banks still, however, quote the 2018 RBI circular and point out that they have not yet received any official communication from the RBI post that.
The uncertainty about the future of cryptocurrencies, including Bitcoin, has grown manifold as the bill on cryptocurrencies is being finalised and will soon be sent to the Cabinet. RBI and SEBI do not have any legal framework to directly regulate cryptocurrencies. The existing laws are inadequate to deal with issues concerning them.
Finance Minister Nirmala Sitharaman recently said there won’t be a complete ban. She also said RBI will be taking a call on the regulation part. While FM’s statement was considered a positive sign by crypto exchanges, there are various media reports suggesting that RBI is seeking a complete ban on virtual currencies.