Since cryptocurrencies have gained popularity among investors, the Reserve Bank of India (RBI) has raised concerns about their volatility and the lack of safeguards in the market. Considering cryptocurrencies are based on the concept of de-centralised control and have no single authority regulating their issuance, the government finds it challenging to trace the origins of transactions in the market. This raises concerns about their potential to be used in financing terrorism, laundering money and other illegal activities.
In light of these concerns, on the April 6, 2018, the RBI issued a circular prohibiting all RBI-regulated entities from rendering services in connection with virtual currencies, including maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/sale of virtual currencies. This came as a big blow to crypto trading platforms and retail investors who had heavily invested in cryptocurrencies, as it meant an effective ban on cryptocurrencies. However, this circular was later set aside by the Supreme Court in March 2020 in the case of Internet and Mobile Association of India V. Reserve Bank of India.