India has driven cryptocurrencies further into the shadows and away from mainstream adoption by prohibiting financial institutions from dealing with exchanges.

In a circular released on April 5, India's central bank said no entities regulated by it should deal with or provide services to businesses dealing with or settling virtual currencies. According to the controversial circular, which gave banks three months to comply, the Reserve Bank of India (RBI) has concerns regarding consumer protection, market integrity and money laundering.

The Internet and Mobile Association of India had approached India's top court for a temporary stay on the move, which it called "arbitrary, unfair and unconstitutional." The plea was rejected and the next hearing will be held on July 20. 

The country's cryptocurrency exchanges released statements this week addressing RBI's latest guidelines. India's first and largest crypto exchange, Zebpay, stopped rupee deposits and withdrawals on July 4. It clarified that coin deposits and withdrawals and crypto-rupee and crypto-crypto pair trading would continue. Coinome, which issued a similar statement, told its customers that their coins would retain value as per global markets and warned against panic selling. 

Dear User,
Today we are disabling the rupee deposit and withdrawal options on the Zebpay app. This is being done in light of the bank account closures as per the RBI guideline.
More details here: https://t.co/bptLZXFL7R pic.twitter.com/NEvVNHgJiP
— zebpay (@zebpay) July 4, 2018

Cryptocurrencies like bitcoin have never been banned in India, and one can still use tokens to purchase goods from a vendor that accepts virtual currency. Peer-to-peer (P2P) trading using fiat currency can also continue without regular banking channels. Indian exchanges Koinex and WazirX have launched P2P trading networks. "Loop is a whole-hearted effort to ensure that the legit and verified investments made by Indian investors don’t turn into dead assets," said Koinex in a statement.

However, there's no doubt this recent development severely restricts the market, and it looks like more regulations may be on the horizon. Finance Minister Arun Jaitley announced in February that the government was working to "eliminate" the use of cryptocurrencies in the country.