India’s central bank is worried that its crypto crackdown may backfire...

The Reserve bank of India (RBI) fears it may be pushing cryptocurrencies into the shadows.

There is a need to keep track of trade in virtual currencies turning opaque, the RBI has said in its annual report released on Aug. 29.

“Developments on this front need to be monitored as some trading may shift from exchanges to peer-to-peer mode, which may also involve increased usage of cash,” the report said. “Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations, thus raising concerns on AML/CFT (anti-money laundering/combating the financing of terrorism) and taxation issues, require close watch.”

Sign up for Quartz Private Key, the smart, busy person’s trustworthy guide to world of crypto.

On April 06, the regulator directed all lenders to close the accounts of cryptocurrency exchanges and traders and wind down business relationships with them within three months.

Since then, the bourses have tweaked their operations to eliminate the use of bank accounts. They have migrated to peer-to-peer trade and crypto-to-crypto business model to circumvent the ban.

Peer-to-peer trade involves the exchanges connecting the buyer and seller, while in crypto-to-crypto transactions, traders can buy units of one digital currency for another at predetermined rates.

Some exchanges have also been looking at shifting their offices to more crypto-friendly countries.

The exchanges now say that the RBI could have avoided precisely this situation by taking more prudent steps to understand the ecosystem and regulate it instead of coming down heavily on it.

“The exchanges have been following a robust know-your-customer procedure and enforcing only bank-related transfers which could have helped to keep a tab on the money trail,” Praveen Kumar, chairman and CEO of Belfrics, a Malaysia-based exchange with operations in India.

The dislike
The RBI’s uneasiness with cryptocurrencies is well known.

One reason it wants to ring-fence the sector is to protect customers. “Though cryptocurrency may not currently pose systemic risks, its increasing popularity leading to price bubbles raises serious concerns for consumer and investor protection, and market integrity,” the report said. For instance, bitcoin lost nearly $200 billion in market capitalisation in about two months from the peak value in December 2017, it added.

The regulator had earlier pointed that cryptocurrencies have no intrinsic value as they are not backed by assets.

Now, all eyes are on the final supreme court hearing on Sept. 11 on the RBI ban.