What are the views of RBI? And whether it is possible to buy bitcoin in India? The answers to these questions and other information is provided as a handy guide for buying bitcoin in India.
Bitcoin is absolutely the Wild West of finance, and thank goodness. It represents a whole legion of adventurers and entrepreneurs, of risk takers, inventors, and problem solvers. It is the frontier. Huge amounts of wealth will be created and destroyed as this new landscape is mapped out.
~ Erik Voorhees
Bitcoin price had fallen to a level below USD 16,000 in November 2022. This was due to several factors affecting its demand and supply. However, with some bounce back in its price, the interest is again coming back as an investment avenue. Notwithstanding that El Salvador and the Central African Republic (CAR) are the only two countries in the world where Bitcoin functions as a legal currency, there is increasing acceptance among users across several other countries. President Nayib Bukele of El Salvador expected that adopting bitcoin as legal tender “In the short term this will generate jobs and help provide financial inclusion to thousands outside the formal economy.” However, International Monetary (IMF), had urged El Salvador to remove bitcoin as legal tender due to various concerns. Further, various central banks have time and again raised alarms on its risks, especially on the conduct of monetary policy.
In this connection, Reserve Bank of India (RBI) Governor, Shri Shaktikanta Das, stated the bank’s stance on cryptocurrency at the Business Today Banking and Economy Summit. This was in essence an elaboration of earlier warnings that the RBI has provided from time to time, i.e, the risks of dollarisation and the absence of a regulatory structure have already been brought out by RBI earlier. The Governor highlighted that investments in cryptocurrency like bitcoin are nothing but gambling as such investments could not masquerade as financial product or financial asset investments. This is so as cryptocurrencies did not have an underlying value. Further, such investments pose risks for the effective conduct of monetary policy by the central bank as the monetary authority loses control over money supply by the quantum of such investments.
So, does that mean investments in cryptocurrency like bitcoin is banned in India? If so, how to buy bitcoin in India after RBI ban? The simple answer is such investment is not banned. The views of the Governor were only to highlight the risks of not having any regulatory control over cryptocurrencies. Finance Minister, Nirmala Sitharaman, said in October last year that the government hopes to discuss crypto regulation with the G20 countries to establish a technology-driven regulatory framework for crypto assets. Further, the Indian government has also brought out a law to tax capital gains from investments in cryptocurrencies.
Thus, the mechanism to invest in bitcoins remains the same even after the statements by Governor of RBI. To provide perspective, we will cover some basics of crypto exchanges through which bitcoin investment can be made.
With the advent of blockchain-supported decentralised systems (like Bitcoin), provision of non-custodial financial services became possible at a large scale. In the non-custodial model, the customer retains full custody (possession through ‘cold’ wallets) of their assets at all times, using the service provider merely as an interface for conveniently managing their assets. Thus, the user uses a non-custodial wallet without the need to ask for permission to use the service. There’s no account approval process, and hence anyone in the world can download a designated app and start using it immediately. Secondly, only the user has access to his funds. This makes it nearly impossible for the service provider (including provider of the non-custodial wallet), a government, or anyone else to prevent the user from using his funds exactly as he wishes. Of course, with full freedom to access his funds, the user would need to manage his non-custodial wallet carefully. This includes backing up his wallet and adhering to password management best practices.
However, not all cryptocurrency wallets are non-custodial. Centralized cryptocurrency exchanges (Coinbase, Binance, WazirX etc.) provide custodial cryptocurrency wallets (sometimes known as ‘web wallets’ or ‘hot wallets’). While such exchanges are useful for buying, selling, and trading cryptoassets, when one uses these exchanges, his crypto is held in trust by the exchange. The risks here are similar to (and in many cases greater than) those associated with holding one’s money at a bank. The risks stem from the fact that, fundamentally, user is not in full control of his funds.
In India custodial cryptocurrency exchanges are in vogue. Hence, you would like to first select your exchange. The choice will depend on a lot a factors, including, ease of usage, a smooth interface, security aspects, KYC process, support for trading pairs and minimal trading fee. Further, an exchange releasing its order book should be preferred as it is a sign of transparency and also indicates whether the exchange has a strong order book (substantial buy and sell trades) providing sufficient liquidity for investors for exiting when required. As each investor’s preferences are different for the factors it gives weightage, it is better to go through the options individually and decide. The links to the main exchanges is provided below:
