Exit options for Indian cryptocurrency investors

They could request friends or family members abroad to sell them, or sell to another investor abroad at a small discount

The ban announced by the Reserve Bank of India (RBI) on regulated financial entities having any financial transactions with private entities dealing in cryptocurrency has put investors in these digital currencies in a quandary. The ban essentially means that if they sell their cryptocurrency holdings on these exchanges, the money from this transaction can't come into their bank account. Here are a couple of options these investors can explore.  

One, they could sell their cryptocurrency holdings to a family member or friend settled abroad at the going price. This person could go to your exchange and buy your cryptocurrencies, and you could transfer the private keys to him. The latter will, in turn, transfer the money from his personal account to yours.

The other option is to sell your cryptocurrency exchange to another investor, but he would charge you a commission for the transaction. In other words, he would buy them from you at a discount of, say, 5-10 per cent on the going rate. People who own large amounts of cryptocurrencies may have to adopt this route. You will have to go on the web and look for buyers (on sites like Craigslist). In other words, you will have to depend on an informal business network.

The silver lining in this admittedly bleak scenario is that cryptocurrencies, or the exchanges that deal with them, have not been banned. If your cryptocurrency is in a wallet held by the exchange, you can still access them. Do take possession of your private keys immediately, in case these exchanges shut down overnight.

Many Indian investors also have their accounts on international cryptocurrency exchanges. They buy cryptocurrencies using international debit and credit cards issued in India. There is a possibility that these exchanges too may no longer accept Indian credit and debit cards. Many international exchanges stop dealings with people from countries where cryptocurrencies have been banned. If they continue to deal, you may be able to use your credit card to buy cryptocurrencies, but you will not be able to sell them. If you sell, the money has to come into your Indian bank account, and that is a risk. If the bank of India recognises that the transfer has taken from the account of a cryptocurrency exchange abroad, it may refuse to accept the money, and your money could get stuck abroad.

As for Indian cryptocurrency exchanges, it will be impossible for them to survive by dealing in cash, given the huge amounts involved and the rapid fluctuation in the value of these currencies. In all probability, these exchanges will engage with the RBI and the government and ask to be allowed to make a clean exit. This basically means that they will request for time to sell the cryptocurrency assets of their investors and return the money to them, after which they will shut down, or perhaps move base abroad.