Is it Time for Crypto Exchanges to Move Their HQs Outside India? Relocating to a new country or offshore wouldn't be an easy task as there would be significant tax and regulatory ramifications

While announcing 2018's first Bi-Monthly Policy, The Reserve Bank of India, last week handed over a death note to all the cryptocurrency players in India.

RBI acknowledged the fact that global regulatory responses to these tokens are not uniform, but it is universally felt that virtual currency can seriously undermine the Financial Action Task Force on Money Laundering (FATF), adversely impact the market integrity and capital controls

B.P. Kanungo, Deputy Governor, Reserve Bank of India during the announcement said, "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 business relationship with entities dealing with virtual currencies forthwith and unwind the existing relationship in a period of three months ."

Discussing the move, Akash Karmakar a fintech and data privacy lawyer at Veritas Legal observes this as a radical move by the regulator and instead of a blanket ban, which would practically be very difficult to enforce, the RBI has asphyxiated trading, thereby making cryptocurrency an illiquid asset class.

"Without tradability, the value represented by a token is ring-fenced and cannot be monetised by trading it on an exchange. Depriving cryptocurrency holders of liquidity in itself discourages further fund deployment in cryptocurrencies. I would assume that given regulatory concerns regarding the misuse of cryptocurrencies as a tool to launder money, a consultative process was ruled out by the RBI," he asserted.

Considering the ban, the announcement has raised concerns of about fifteen cryptocurrency exchanges' future. Entrepreneur Media evaluates what could be the next step for the firms in distress.

New routes

Praveenkumar Vijayakumar, Founder & CEO, Belfrics Global is not at all surprised by RBI, instead, he was anticipating the same which led the company to stop the exchange's operations in India a few months back. He thinks the announcement is an end of the road for many of the Indian exchanges and a clear let down for the new investors who missed the boat of the first wave of cryptocurrency boom.

"RBI has taken a safer route, similar to that of China, to use the financial institutions to curtail the cryptocurrency transactions," the entrepreneur said while adding that, "As evident from the aftermath of Chinese action, these measures will not deter the crypto enthusiasts from transacting cryptocurrencies. Since cryptos can be transacted peer-to-peer, people who want to invest and trade in those currencies will find their way to get hold to the cryptocurrencies."

While on the other side, Vajahaath Hussain from Almora.io feels the initial response might be a havoc-like situation, however, with time everyone will find a route suitable to their needs and all major exchanges are finding their routes.

Explaining to viable options available of cryptocurrency exchanges, he shares, "either they will remove all fiat conversion options and shift entirely to crypto trading, or else they will find partners with such entities that can provide INR liquidity and do not come under RBI like Neteller. Let's just hope that these exchanges settle all customer accounts before closing operations in the country."

Go International

Meanwhile, Vishal Gupta, Founder of binex.trade thinks trading platforms cannot shift or shut their headquarters because of this sudden notice and will have to explore innovative ways to ensure that their customer base does not face the brunt of RBIs decision.

He adds, "I strongly believe that trading platforms need to comply and work closely with regulatory bodies to chalk out a way forward. This will ensure a positive sentiment in the market and widespread adoption of the technology itself."

However, market experts believe India is likely to witness some of its home-grown crypto exchanges move their headquarters to virtual currencies friendly countries like UAE, Singapore or Belarus.

"Once you go crypto, it rather becomes impossible to go back to fiat. Jurisdictions like UAE and Singapore have made official announcements about their crypto-friendly laws, and they will turn into the most sought-after cryptocurrency hubs in the next five years or so. These countries are spending immense resources and energy for crypto-related R&D, in contrast to other premature decisions. They might just set out to be the best examples of regulated cryptocurrency deployment," Hussain added.

However, according to Karmakar relocating to a new country or offshore wouldn't be an easy task as there would be significant tax and regulatory ramifications and the duality of these factors would play a major role in determining which jurisdictions are favoured by crypto exchanges.