As per the request of the Reserve Bank of India, the country’s central banking institution, local banks have been disallowed from dealing with crypto businesses such as Bitcoin exchanges since 2018.
With no immediate plans of the Supreme Court of India to reverse the decision of the country’s central bank, crypto companies have been pushed out of the local market.
Consequently, Bitcoin investors have lost access to fiat-enabled exchanges and have resorted to peer-to-peer exchanges to convert cryptocurrencies, which could be impractical and unsafe, especially for face-to-face deals.
However, a recent decision of the government of Bahrain to encourage cryptocurrency firms in India to come into the country and operate their businesses with proper resources could pressure India to potentially legalize and open its cryptocurrency market in the future.
On March 3, The Economic Times reported that Bahrain has invited cryptocurrency companies in India to relocate to Bahrain as a part of the country’s initiative to establish a fintech hub.
The Bahrain Economic Development Board (EDB) is set to provide crypto businesses with a wide range of resources including proper banking solutions and practical regulatory frameworks to support growth and innovation.
Dalal Buhejji, a senior manager at the EDB, said:
Central Bank of Bahrain has put in the right ecosystem to support growth and innovation. We have seen different new regulations coming out recently to support open banking, crypto asset trade regulation and draft regulation on robo advisory.
According to the EDB, the government intends to focus on the growth of open banking, blockchain, crypto assets, robo advisory, and remittance to facilitate the expansion of its financial service sector, which already makes up for a large portion of the country’s GDP.
The approach towards cryptocurrency regulation by Bahrain directly counters that of India, which took the route of imposing a blanket ban on all cryptocurrency dealings and businesses.
In late 2018, the Reserve Bank of India banned every commercial bank in the country from providing services to cryptocurrency businesses, cracking down on the local crypto exchange market.
RBI deputy governor BP Kanungo said at the time:
“We have decided to ring-fence the RBI regulated entities from the risk of dealing with entities associated with virtual currencies. They are required to stop having a business relationship with the entities dealing with virtual currencies forthwith and unwind the existing relationship within a period of three months.”
The government of India has shown no interest in regulating and legalizing cryptocurrencies as an asset class in the past several years.
Although the Supreme Court hearings have led some companies and investors to become optimistic about the prospect of the country’s cryptocurrency sector, no progress has been made so far.
But, the pressure from other markets and governments like Bahrain on India could lead the country to reconsider its stance on cryptocurrencies as it could drain the region out of billions of dollars in potential deals.
South Korea, which has recently become a cryptocurrency and blockchain powerhouse, was previously skeptical towards regulating cryptocurrencies.
The country ended up legalizing the asset class to protect investors and to prevent companies from moving out of the country to other markets like Japan, Singapore, and Hong Kong.
Vishal Gupta, co-founder at DABFI, said that the RBI could provide the cryptocurrency sector with some relief in the long run.
“These have become dead assets for people who are holding onto them. This is going to have huge repercussions. If you disallow trading there is no exit to this. I personally believe they [RBI] will give some relief,” he said.