The Indian government has left everyone more confused about cryptocurrencies

Image: Reuters/Benoit Tessier
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India’s cryptocurrency ecosystem is dazed and confused.

Presenting the budget on Feb. 01, finance minister Arun Jaitley didn’t mince words on virtual currencies. “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.

Yet, the Narendra Modi government hasn’t taken any measures so far to declare them illegal, or to ban them. And what’s adding to the confusion is Jaitley’s post-budget statement to public broadcaster Doordarshan that till a government-appointed panel, which is currently studying the implications of virtual currencies, comes to a conclusion, people will be discouraged from using them.

“The statement doesn’t clear the air, it adds a bit more confusion,” said Anirudh Rastogi, managing partner at law firm TRA. Rastogi is also hopeful that in the absence of an explicit ban, the government may decide to only regulate cryptocurrencies.

That’s a view shared by India’s cryptocurrency exchanges.”It’s not really surprising that the government is wary of it as it is a completely new technology. Also, it is absolutely understandable that the government wouldn’t want the national currency to be replaced by a new form of money that is not backed by them, and therefore they have adopted such a tough stance on it,” said Shubam Yadav, co-founder of Coindelta, a cryptocurrency exchange.

“We are viewing (Jaitley’s) comments…more as a cautionary statement as there are risks involved in investing in these currencies because of price volatility,” said Jincy Samuel, COO at Coinsecure, another exchange.

Yesterday, for instance, bitcoin prices tumbled to below $9,000 per piece, the lowest level this year, sparked by a selling frenzy. This is a steep fall compared to its value of over $19,000 in December 2017.

“There was a lot of tension and irrational amount of panic and there was desperate selling in the market for a few minutes, which stabilised later on,” said Ajeet Khurana, head of the Blockchain and Cryptocurrency Committee, a lobby of bitcoin players in India. “What people need to understand is that even gold is not a legal tender and cannot be formally used for making payments and settlements. Moreover, the government has earlier said that there won’t be a knee-jerk reaction from their side, so we are still hoping for the best.”

Bad signal

Such optimism aside, the environment does not look very conducive for digital currencies right now.

In December, the government surveyed India’s cryptocurrency exchanges and reportedly issued tax notices to investors based on their transaction histories. According to industry experts, a few banks have also decided to keep exchanges at an arm’s length, even temporarily blocking their accounts, leading to chaos. Amidst all this, there have been repeated statements from the government and India’s central bank, asking people to stay away from virtual currencies.

However, an irrational ban can end up fuelling a parallel illicit trading of virtual currencies which, TRA’s Rastogi said, would be hard to surveil.

That’s why, instead of restricting cryptocurrencies, it makes more sense to only regulate them, said DD Mishra, research director at Gartner. “They can be regulated to prevent any adverse impact and risks while exploring blockchain side by side and leverage opportunities available with new concepts and technologies,” Mishra said.