On December 5, the Reserve Bank of India (RBI), the country’s central bank, cautioned investors of bitcoin, clarifying that the government is yet to regulate bitcoin and cryptocurrency exchanges within the local market.
An official statement released by the RBI read:
“Reserve Bank of India (RBI) on December 24, 2013, [cautioned] users, holders and traders of Virtual Currencies (VCs) including Bitcoins regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such VCs. Vide press release dated February 1, 2017, RBI has also clarified that it has not given any licence/authorisation to any entity/company to operate such schemes or deal with Bitcoin or any VC.”
Central Banks Not Happy With Bitcoin
At a financial forum held in Shanghai last week, Chinese central bank People’s Bank of China (PBoC) deputy governor Pan Gongsheng stated that in the long-term, bitcoin will decline in value and adoption. “One day you’ll see bitcoin’s dead body float away in front of you,” said Gongsheng.
However, contrary to the statement of Gongsheng and the warning of the RBI, the demand for bitcoin has increased exponentially over the past few months. Even after the nationwide imposition of the cryptocurrency exchange ban by the Chinese government, central bank, and financial authorities, the price of bitcoin has increased from $5,000 to $12,600, peaking at $13,000 earlier today, on December 6.
In an interview with Quartz, cryptocurrency exchange Codinome CEO Vivek Steve Francis explained that if the RBI’s intention is to ban cryptocurrencies and restrict bitcoin, the Indian government would already have done that by now. But, because excessive regulation and an outright ban on cryptocurrency trading would send bitcoin trading to unregulated over-the-counter (OTC) markets, the government has been hesitant towards providing unnecessarily strict regulations on cryptocurrency exchange and the bitcoin market.
“If India had to ban virtual currencies, they would have done that by now. In the last three years, the RBI’s statement has been the same: They are uncomfortable with it and people should invest at their own risk,” said Francis.
It has become increasingly challenging for governments to either ban or heavily restrict bitcoin usage because of the exponential growth of the cryptocurrency market, rapid increase in demand for the cryptocurrency, and the high probability that traders will migrate to unregulated markets upon the imposition of a cryptocurrency trading ban.
A similar trend has occurred in China, in which traders have moved to overseas markets such as Hong Kong with offshore accounts to trade cryptocurrencies. As such, BTCC, Huobi, and OKCoin, formerly three of the largest cryptocurrency exchanges in China, have rebranded to BTCC.com, Huobi Pro, and OKEx, to provide OTC services in Hong Kong.
Sign of Fear
As a decentralized currency and peer-to-peer protocol, bitcoin eliminates the necessity of intermediaries such as banks, and most importantly, separates money and state. Bitcoin diminishes the significance of central banks and questions the existence of government-issued currencies, or the fiat currency system.
Despite the widespread adoption of bitcoin as a robust store of value and safe haven asset by general consumers, investors, major financial institutions, institutional investors, investment banks, and businesses, in the long-term, central banks will likely continue to reassert their opposition against bitcoin, given that it possess a serious threat to their authority.