RBI Banking Ban Reversal: How India's Crypto Market Came Back to Life
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On March 4, 2020, India’s cryptocurrency market didn’t just breathe again-it exploded. After two years of being cut off from banks, exchanges like WazirX, CoinDCX, and ZebPay saw users flood back in. Trading volumes doubled within weeks. New investors signed up by the hundreds of thousands. It wasn’t a slow recovery. It was a reset. And it all happened because the Supreme Court of India overturned the Reserve Bank of India’s banking ban on crypto businesses.
What the RBI Actually Did in 2018
The RBI didn’t ban cryptocurrency. That’s a common mistake. What it did was ban banks from serving anyone who dealt with virtual currencies. That included exchanges, wallet providers, and even blockchain startups. The circular, issued on April 6, 2018, told every bank under its control: stop processing payments for crypto-related businesses. No deposits. No withdrawals. No merchant accounts. No payroll for crypto firms. The result? Exchanges couldn’t operate. Users couldn’t cash out. People who bought Bitcoin in 2017 found themselves stuck. Some platforms shut down. Others moved their operations to Singapore or Dubai. Fintech companies working on real blockchain projects-like supply chain tracking or land registry systems-got caught in the crossfire. They couldn’t open bank accounts either. Innovation froze. The RBI’s reasoning? Risk. They warned about price swings, fraud, money laundering, and the threat to India’s monetary system. Former Governor Shaktikanta Das called crypto a threat to financial stability. But here’s the problem: the RBI never showed any evidence that banks had actually lost money. No case of a bank being drained by crypto clients. No proof of systemic damage. Just fear.The Legal Fight That Changed Everything
A group of crypto businesses, backed by the Internet and Mobile Association of India, took the RBI to court. They argued the ban violated Article 19(1)(g) of the Indian Constitution-the right to carry on any trade or business. The Supreme Court didn’t just side with the crypto industry. It dismantled the RBI’s logic. Justice Rohinton Fali Nariman wrote that the ban was disproportionate. The RBI had used a sledgehammer when a scalpel would’ve worked. Instead of banning all crypto services, the RBI could’ve imposed KYC rules, transaction limits, or required exchanges to report suspicious activity-like it does with forex or stock trading. The court pointed out something simple: if no bank had been harmed, why shut them all down? The RBI had no data. No studies. No incident reports. Just assumptions. And under Indian constitutional law, that’s not enough to strip people of their right to earn a living. The ruling didn’t say crypto is legal tender. It didn’t say it’s safe. It just said: you can’t ban banks from serving legal businesses without proof of harm.What Happened After the Ruling
Within 48 hours of the judgment, WazirX reported a 300% spike in new user registrations. CoinDCX added 50,000 users in a single week. Bank accounts reopened. UPI payments resumed. People could finally move money in and out of crypto without jumping through hoops or using third-party intermediaries. By late 2020, India became the world’s second-largest market for peer-to-peer Bitcoin trading, behind only Nigeria. Local exchanges started offering rupee pairs for over 50 cryptocurrencies. Retail investors, many of them young and tech-savvy, began treating crypto like stocks-buying small amounts, holding long-term, and using it as a hedge against inflation. The RBI didn’t disappear. It kept warning. It kept calling crypto a “high-risk asset.” But now, it had to operate within the boundaries set by the Supreme Court. It couldn’t block banks anymore. So it tried something else: taxation.
The Tax Trap That Followed
In the 2022 Union Budget, the government slapped a 30% tax on all crypto gains. On top of that, a 1% TDS (Tax Deducted at Source) was added on every trade. No deductions. No losses allowed. Even if you bought Bitcoin at ₹5 lakh and sold it at ₹4 lakh, you still paid 1% TDS on the full sale amount. The idea? Discourage speculation. Generate revenue. But the effect was mixed. Trading volumes dipped slightly. But the market didn’t collapse. Why? Because the Supreme Court ruling still stood. Banking access was still legal. People still saw crypto as a store of value, especially with inflation hitting 6-7% annually. Unlike the banking ban, this tax didn’t stop people from trading-it just made them more careful. Many started using crypto as a long-term asset, holding for over a year to avoid short-term tax hits. Others shifted to decentralized exchanges to avoid TDS, though that came with new risks.Where Things Stand in 2025
As of November 2025, cryptocurrency is legal in India. You can buy, sell, hold, and trade it. You can open a bank account with a crypto exchange. You can even get a crypto-linked debit card from some fintech partners. But here’s the catch: crypto is not legal tender. You can’t pay your electricity bill in Bitcoin. You can’t buy groceries with Ethereum. The rupee still holds that exclusive status. So crypto functions purely as an investment asset-like gold or shares. The RBI still doesn’t like it. But it can’t stop it. The Supreme Court’s 2020 ruling is binding. Any future attempt to ban crypto again would require Parliament to pass a law-and even then, it would have to pass the test of proportionality. The courts won’t let regulators act on fear alone anymore. The government’s 2021 draft bill, which aimed to ban private crypto and launch a digital rupee, never became law. No version was tabled in Parliament. No vote was held. So the legal gray zone remains.
What This Means for Indian Crypto Users
If you’re an Indian investor today, here’s what you need to know:- You can legally trade crypto on Indian exchanges like CoinSwitch Kuber, ZebPay, or Bitbns.
- Your bank account won’t be frozen for holding Bitcoin.
- You must pay 30% tax on profits and 1% TDS on every trade.
- You cannot use crypto to pay for goods or services officially.
- If a crypto company goes under, you have no legal recourse under banking laws-crypto isn’t covered by deposit insurance.
