India’s reluctance to allow buying and selling of Bitcoins using banking channels has pushed the country’s three large cryptocurrency exchanges — Zebpay, Koinex and Zecoex — to offer its customers trading between virtual currencies on their platforms.
Traditionally, all trade on cryptocurrency exchanges happen through banking channels to trade Bitcoins and other cryptocurrencies. On April 6, the Reserve Bank of India mandated banks, e-wallets and payment gateway providers to withdraw support for cryptocurrency exchanges in three months.
“Even if there was no RBI circular, the crypto to crypto product would have happened,” said Ajeet Khurana, chief executive of Zebpay. “However, because of the circular and the fact that fiats (money) may no longer be in the picture, it definitely did hurry up and encourage the solution sooner.”
The exchanges call trading between virtual currencies as ‘trading pairs’. Cryptocurrency ‘trading pairs’ refers to the trade between one type of cryptocurrency and another. For instance, in the trading pair Ethereum and Bitcoin (ETH/BTC), you can buy Ethereum with Bitcoin based on volatility.
Analysts perceive this move to be the first step in exchanges trying to reduce their reliance on the Indian rupee since banks will be withdrawing support in the coming months.
“This is a natural evolution that was to be anticipated when the RBI requested banks to stop working with token exchanges. Exchanges were left with little choices but to pivot to an alternative model,” said Joel John, a blockchain analyst with UK-based Outlier Ventures. “A few (exchanges) will shut down, but pivots are an indicator of their natural tendency to pivot and survive.”
If the government’s motive was to curb the flow of black money and illegal transactions happening through cryptocurrencies, “the smarter move would have been to insist all trade happen through banking channels for more traceability,” said Karnika Yashwant, a blockchain consultant.
As more traders move to crypto to crypto trading, banks will not be able to track any fund flows happening through regulated entities. “What concerns me is the rise of OTC (over the counter) markets and the lack of government oversight in that space,” said John of Outlier Ventures.
Over the counter market refers to in-cash transactions of Bitcoins. Websites like localbitcoin.com allow individuals to exchange their local currency for Bitcoins.
India has about 5 million active cryptocurrency traders. In rupee terms, the daily transaction volume varies from a few hundred to up to thousand crores, but the volume of crypto to crypto transactions accounts for utmost 1%.
Source: Economic Times