India’s top court has overturned a ban on banks dealing with cryptocurrencies, providing vital relief to an industry that had been pushed to the brink of extinction.
The country’s central bank in April 2018 issued an order barring financial institutions from doing business with anyone involved in cryptocurrencies. The Reserve Bank of India’s move severely curtailed trading activity and prompted the closure of some of India’s largest virtual currency exchanges.
Before the ban it is estimated as many as 5m Indians traded cryptocurrencies across about two dozen exchanges.
Governments around the world have grappled with how to respond to the rise of digital currencies such as bitcoin but New Delhi’s efforts to restrict the trade have been among the harshest, alongside those of China and Indonesia.
The Supreme Court’s decision on Wednesday to quash the ban on the grounds that it was disproportionate has opened the door to a revival in cryptocurrency trading. The RBI did not immediately comment on the court’s decision.
“Striking that ban essentially opens up the financial institutions to be open to crypto,” said Jayanth Kolla, founder of tech and telecom consultancy Convergence Catalyst. “It’s setting a huge precedent because India is a big economy and a big country.” He added that cryptocurrency enthusiasts “are all ecstatic” with the decision.
Mr Kolla said the ruling could have global significance at a time when cryptocurrency advocates in other countries push for more favourable regulation.
But India’s nascent sector still faces considerable obstacles. A government committee has separately proposed an outright ban that could see anyone caught in possession of digital currency being imprisoned for up to 10 years. The proposals, which emerged last year, have not advanced.
Authorities in India including the central bank have raised concerns that virtual currencies are difficult to regulate and leave users vulnerable to fraud, pointing to a $300m bitcoin scam in 2018. They say the anonymous nature of the currencies means they could be used for illicit purposes such as terrorist financing.
But industry group the Internet and Mobile Association of India, which challenged the central bank’s order, insisted that regulators had overreacted.
Crypto enthusiasts argue that opposition stems in part from the fact that the government treats cryptocurrencies as money, and therefore as a threat to the Indian rupee. In practice, advocates say, they are traded more like other assets such as commodities.
“Historic day for crypto in India,” Nischal Shetty, founder of exchange WazirX, wrote on Twitter after the judgment. “We can now innovate.”