Bitcoin suffers another blow as India and Pakistan ban banks for any cryptocurrency links

Technology and virtual currency experts criticised the prohibition decisions as ‘very aggressive’

PUBLISHED : Saturday, 07 April, 2018, 5:40pm
UPDATED : Saturday, 07 April, 2018, 9:04pm

India’s central bank barred banks on Friday from having any links to virtual currency dealers, slashing the prices of bitcoin and other cryptocurrencies on local exchanges.

Pakistan’s central bank said in a separate statement late on Friday that cryptocurrencies were not legal in the country.

The State Bank of Pakistan told banks and other financial services providers to refuse customers seeking cryptocurrency transactions.

It noted that those using cryptocurrencies to transfer funds outside Pakistan could be prosecuted.

India’s government and the Reserve Bank of India (RBI) have previously cautioned the public over cryptocurrencies, with New Delhi vowing earlier this year to eliminate the use of digital currency, which it considers illegal.

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The RBI said on Thursday that entities under its regulation may not deal in any virtual currency.

The price of bitcoin fell to a low of 350,000 rupees (US$5,392) versus its international market price of US$6,617, following the RBI announcement, cryptocurrency exchange Coinome said.

Instead of ... seeing how to curb potential misuse, it seems to be a rather broad-stroke approach of completely prohibiting this altogether
Namita Viswanath

Bitcoin was trading before the announcement at a 5 per cent premium to the overseas price, said Vishal Gupta, co-founder of the Blockchain and Cryptocurrency Committee, an industry body, noting it is now trading at a significant discount.

“This seems to be a very aggressive move,” said technology law expert Namita Viswanath, a principal associate at IndusLaw.

“Instead of the RBI taking a holistic approach and seeing how to curb potential misuse, it seems to be a rather broad-stroke approach of completely prohibiting this altogether.”

Late on Friday the RBI issued a more detailed circular stating any regulated entities that already provide virtual currency dealing services will have to cut all ties within three months.

The Indian government has previously likened cryptocurrency investments to “Ponzi schemes” that offer unusually high returns to early investors.

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It has set up a panel to investigate cryptocurrencies and plans to appoint a regulator to oversee unregulated exchanges.

Thursday’s announcement raised concerns about the exit options for investors who currently hold cryptocurrencies.

The blockchain and Cryptocurrency Committee’s Gupta estimated that at least 4 to 5 million people in India hold some kind of cryptocurrency and that 60 per cent of them entered the market between October and December, when prices were at a peak.

“Most of these people are already sitting on capital losses,” he said. “Now the asset has become dead. You can’t transact with it. If you transact with it, your bank accounts are going to be shut.”