According to reports, bitcoin is trading higher in India and Iran with premiums ranging from 5 to 30 percent, two regions that have practically restricted bitcoin trading.
Is banning bitcoin not productive?
In 2018, the Reserve Bank of India (RBI) requested banks under its oversight to stop providing services to crypto exchanges, putting an end to fiat-to-crypto trading platforms in the region.
The RBI said at the time:
Virtual Currencies (VCs), also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others… In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs.
Since then, despite the move of the G20 to regulate the crypto sector through the imposition of a unified regulatory framework, the government of India has pushed forward with its restriction on crypto.
In April of this year, The Economic Times reported that government departments have begun drafting a bill to ban cryptocurrencies in the country entitled “Banning of Cryptocurrencies and Regulation of Official Digital Currencies Bill 2019.”
Consequently, due to regulatory uncertainty and the restriction on banks from working with crypto exchanges, most crypto-related businesses in India have shut down and moved to other markets.
Similarly, Iran, which is yet to release a clear guideline for exchanges and businesses, drafted a bill that restricts the operations of crypto-related entities. The proposed legislation was criticized by the local crypto community which then offered an alternative proposal to the government.
In both countries, it is difficult for investors to purchase crypto assets like bitcoin and ether, the native crypto asset of the Ethereum blockchain network. Most trades are processed in the over-the-counter (OTC) market or in a peer-to-peer manner.
In May, LocalBitcoins, a major peer-to-peer bitcoin trading platform, closed its services in Iran in a move which many have speculated to be because of the sanctions placed upon Iran by the U.S. government.
“If you have an account already, you will be able to withdraw your bitcoins, but you will not be able to use the platform for trading,” LocalBitcoins reportedly told a user in Iran.
As a result, premiums have begun to emerge in the bitcoin market of Iran and India, ranging from 5 to 30 percent.
When the bitcoin price peaked at $11,200 on June 22, a TrustNodes report disclosed that the asset was trading at $11,700 in India with a $500 premium.
Dovey Wan, the founding partner at Primitive said that bitcoin is now trading with a 30 percent premium in Iran’s OTC market, indicating large demand from local investors.
Regulation over a ban
The concern of most regulators regarding bitcoin and the crypto market, in general, comes down to the prevention of money laundering.
For exchanges to operate transparently in compliance with local regulators, a clear regulatory framework has to be imposed with the support of local banks.
There exists a risk in the imposition of an outright ban of cryptocurrencies that the local market may shift to a peer-to-peer market, an environment in which it becomes significantly more difficult for regulators to address money laundering and other core issues.
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