Arun Jaitley has just killed India’s cryptocurrency party

Cracking down.
Cracking down.
Image: Reuters/Dado Ruvic
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It appears to be the end of the road for cryptocurrencies in India.

Finance minster Arun Jaitley, in his budget speech today (Feb. 01), stated that the government will do everything to discontinue the use of bitcoin and other virtual currencies in India. He reiterated that India does not recognise them as legal tender and will instead encourage blockchain technology in payment systems.

“The government does not recognise cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payments system,” Jaitley said.

This declaration comes after months of speculation over the fate of cryptocurrencies in India, home to a large number of bitcoin traders and investors. In fact, one in every 10 bitcoin transactions in the world takes place in India.

“The government will now either come out with a legislative mechanism or make suitable amendment in existing legislation to ensure that dealing and trading in cryptocurrency is made illegal and to penalise entities and individuals who are involved in their trade and circulation,” said Monish Panda, founder of Monish Panda & Associates law firm. “We will have to wait and watch as to what will be the final framework of such legislation.”

Over the last few months, the government and the Reserve Bank of India have repeatedly expressed their discomfort over bitcoin and other e-currencies. Late last year, the finance ministry dubbed them a ponzi scheme. “There is a real and heightened risk of investment bubble of the type seen in ponzi schemes which can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money,” the ministry had said. “Consumers need to be alert and extremely cautious to avoid getting trapped in such ponzi schemes.”

At the same time, the Narendra Modi government had also announced the setting up of committee to understand the implications of virtual currencies, and to ascertain the worldwide regulations surrounding them.

Jaitley’s stance today should now put to rest doubts over the government’s approach.

Other countries, too, have been jittery in this regard. For instance, in January China was reportedly preparing to widen its crackdown on cryptocurrency trading. Nonetheless, Indian cryptocurrency exchanges held out hope, arguing that the government would maintain some balance in its regulations.