Confusion reigns in India’s cryptocurrency ecosystem.
The Narendra Modi government and India’s central bank have made it amply clear they aren’t comfortable with virtual currencies. The recent spike in bitcoin’s value, which attracted hordes of investors, has only made the government more vociferous in its criticism.
However, these announcements don’t make these virtual currencies, or trading in them, against the law.
So, their status is in a curious limbo—they’re neither legal nor illegal in India.
No man’s land
On Nov. 30, 2017, when investor frenzy was at a high with rising bitcoin prices, finance minister Arun Jaitley said the country doesn’t recognise cryptocurrencies as legal tender.
Almost a month later, the government cautioned people against investing in them, warning that they are similar to fraudulent investment schemes and have no legal status yet. “There is a real and heightened risk of (an) investment bubble (in virtual currencies) of the type seen in ponzi schemes which can result in (a) sudden and prolonged crash exposing investors, especially retail consumers, losing their hard-earned money,” the finance ministry said in a notification on Dec. 29, 2017. “Consumers need to be alert and extremely cautious as to avoid getting trapped in such ponzi schemes.”
Again, on Jan. 02, Jaitley reiterated the government’s position in parliament, saying people are betting their money at their own risk. ”Through multiple notifications, the two parties (the government and the RBI) have notified the public time and again that bitcoins will not be considered lawful or legal tender in India,” he said.
However, this doesn’t immediately render these currencies illegal.
“Not being legal tender is not the same as it being illegal,” explained Rishabh Sinha, a counsel at law firm TRA. “The difference is that if it’s a legal tender that means it is recognised in the country as a currency and can be freely accepted for payments and settlements. On the other hand, if it is not a legal tender that means that it may not be accepted for making a financial transaction. For instance, gold or a share certificate. These are not legal tenders but some people may accept it as they see value in it.”
Currently, there are no regulations on these virtual currencies. So, by emphasising that they are not legal, but without declaring them illegal, the government has put them in the grey zone.
It’s likely that the government has kept the legal status of cryptocurrencies unclear as it wants to discourage people from investing in them, considering they are very high-risk assets, added Sinha.
Unsurprisingly, bitcoin exchanges in India aren’t supportive of these ambiguous statements. “There is now a certain amount of uncertainty among the common man after these recent statements and people are worried about what will happen to their money,” said Jincy Samuel, COO at Coinsecure, a bitcoin trading exchange. “Instead, it would be better if the government introduced some taxation norms or laws to regulate this space.”
This delay in clarity is confusing, and strong statements from the government are discouraging people from trading and investing in bitcoin and other similar currencies, added Hesham Rehman, CEO of Bitxoxo, another cryptocurrency exchange company.
But some firms are not too perturbed. “If you carefully look at the statement by the government and the Reserve Bank of India, you will realise they have been making the same comments since 2013, so nothing much has changed. They are just doing this as regulations are yet to be put in place,” Sathvik Vishwanath, co-founder and CEO of Unocoin, a cryptocurrency exchange, told Quartz.
Meanwhile, the government wants to closely scrutinise profits made during the bitcoin boom. After a survey of cryptocurrency exchanges last month, the income tax department is now reportedly set to send out notices to about 500,000 investors who profited from the virtual currency boom but did not pay taxes on their gains. Money laundering and funding of illegal transactions via these cryptocurrencies has been another area of concern for Indian regulators.
The government has also constituted a committee to suggest a framework for regulating these virtual currencies and to understand their current structure and legal implications. Till then, it’s virtually a bit of a haze.