Don't sell cryptocurrencies in panic even as banking services are stopped

Even though exchanges may not be able to do banking transactions, there are alternative ways to buy and sell

From July 6, investors will not be able to transfer funds from their bank accounts to cryptocurrency exchanges. Transfers in the reverse direction will also not be possible. The deadline that the Reserve Bank of India (RBI) had set for banks to discontinue banking services is up.  

The exchanges had filed a case against the banking regulator’s circular. “We had hoped that the Supreme Court would grant a stay on the RBI circular till the time the matter is finally disposed of. The apex court, however, refused to grant any interim relief,” says Rashmi Deshpande, associate partner, Khaitan & Co. While these developments do mean greater inconvenience for those investing in cryptocurrencies, there is no need to press the panic button and exit your holdings in haste.

Exchanges say that individuals don’t need to worry about the money lying in the exchange's wallet. “Even after July 6, individuals will be able to do rupee to crypto trading using the existing funds in their wallets,” says Shivam Thakral, CEO and co-founder, Buyucoin.

Alternative trading mechanisms are also being offered. WazirX, for example, is offering peer-to-peer (P2P) transactions where two individuals can buy and sell to each other. “We will provide an escrow service and transfer the virtual currency once the seller confirms receipt of money,” says Nischal Shetty, founder and CEO, WazirX. The platform is offering the service for free currently. To ensure safety, all the buyers and sellers on their platform will be KYC (Know Your Customer)-compliant. This mode will bypass the need for the platform to use banking channels.

Your options now 

• Continue trading with the funds lying in your exchange account
   
• Trade one cryptocurrency for another
   
• Buy/sell with other individuals using an exchange's escrow service
   
• Do crypto-to-crypto trading on an exchange that offers Tether, a stable crypto   

The drawback of this mechanism is that it is more convoluted than dealing directly with the exchange. Also, the buyer and seller need to coordinate the transaction between themselves, as is done on classified websites like Quikr and OLX.

Another option for individuals is to opt for crypto-to-crypto trading and not use a fiat currency (like the rupee) at all. Newcomers will have to use the P2P route to buy a base currency, which on most exchanges is the Bitcoin. After that, they can trade between bitcoin and other cryptocurrencies. Exchange sources say that cryptocurrencies may not be legal tender, but they are not illegal in India either – it is a grey area right now. As for the benefits of crypto-to-crypto trading, Akash Aggarwal, chief executive officer, Alluma says: “Long-term believers in cryptocurrencies want to diversify their holdings. They also want to hold those cryptocurrencies that have better prospects." The exchange plans to start its operations in India soon.

Crypto-to-crypto trading can be highly volatile as both the assets are not stable. But the higher volatility can also translate into higher gains. Globally, most of the volume today is in crypto-to- crypto trading. To mitigate risk, investors can move into a cryptocurrency called the ‘Tether’. As its value is pegged to the US dollar (USD), it is more stable.