Last week, the Reserve Bank of India (RBI) released a statement that regulated entities such as banks are not to do business with any entities that deal in virtual currencies like Bitcoins. It stated that virtual currencies raise concerns of consumer protection, market integrity, and money laundering, and so entities regulated by the RBI shall not deal with individuals or businesses dealing with virtual currencies.

This is in line with earlier announcements – as early as September last year, before the Bitcoin surge, the RBI had said that it is not comfortable with Bitcoin. More recently, at the start of the year Finance Minister Jaitley had said that Bitcoin is not legal tender in India, and the Finance Ministry had likened cryptocurrencies to Ponzi schemes.

Around the same time, HDFC Bank emailed its users to say that HDFC credit, debit, and prepaid cards cannot be used for the purchase or trade of Bitcoins and other cryptocurrencies/ virtual currencies. As part of his Budget speech this year, Finance Minister Arun Jaitley explicitly reiterated that cryptocurrencies are not legal tender, saying that their use “as part of the payment system” will be eliminated.

With the RBI’s statement it appears that this is happening, and on Friday, a day after the statement was released, Yes Bank also emailed its customers saying the use of Yes Bank cards to purchase or trade in cryptocurrencies is prohibited. “The untimely directive from RBI admonishing the banks to settle their partnership with digital currencies players has definitely jolted the market,” said Rahul Raj, CEO and co-founder Koinex.

“Such an uncanny move surely impacts the market as we saw a fall in token values and also a significant dip in daily trade volume. However the RBI has given banks a time frame to honour all pending settlements and this time essentially is also for crypto-industry players to initiate a dialogue with the regulators and realign the strategic approach because we feel a regulated framework will be better than a ring fencing approach.” An employee at one of the major Bitcoin exchanges in India also spoke to us on the request of anonymity, and gave a less diplomatic response. Read more from…

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