The rapid rise of cryptocurrencies has attracted a large number of investors. This has led to an increase in popularity for the newest form of currency, including in India, where authorities first banned and then allowed it. Trading in cryptocurrencies, is, however, yet to receive backing from the government. The Reserve Bank of India (RBI) is said to be in the process of launching its own cryptocurrency, but no further details have been announced so far.
Risks and Rewards
In absence of clarity on the status of cryptocurrency in India, many investors are wary and avoid trading in it despite a strong desire to do so. One reason for cryptocurrency becoming an attractive destination to park money is its unmatched returns during a bull market. The risks are equally high as has been witnessed for the past 2-3 months as the market has slumped after one of the best rallies in a long time.
In India, like in many other parts of the world, the biggest problem is the lack of regulation, approval or oversight from authorities. In 2018, the RBI banned entities regulated by it from trading in crypto coins. Through a circular, it cautioned about the risks associated with trading in such currencies, including Bitcoin.
Another risk to the crypto trading is the possibility of a ban. Though the government appears to have softened its stance, it's not clear whether it will go for a complete ban or regulation.
In March 2020, the Supreme Court set aside the RBI circular but banks and other major financial institutions have stayed away from cryptocurrencies. Later, the central bank clarified that as its circular is no longer valid, financial institutions no longer need to cite it to discourage people who want to trade in virtual currencies. But it also asked them to do due diligence before investing in any digital currency.