The Reserve Bank of India in a missive declared cryptocurrency as illegal and directed all regulated agencies not to deal with individuals or businesses that trade in them.
The directive largely came in the wake of the crypto craze and the concerns regarding their speculative value, impact on market integrity and capital controls so much so that a couple of months back India’s Finance Ministry advised investors from dabbling in cryptocurrency which they likened to Ponzi schemes. It was feared that cryptocurrency transaction was being used for illegal activities like “money laundering, fraud, terror-funding and drug trafficking.” Further because of its decentralised and unregulated nature it is easier to avoid money laundering laws and its volatility makes it a high-risk investment.
The digital currency, since its creation in 2009, has seen a major surge in its trading prices leading to a crypto mania sweeping the world. The craze can be gauged from the facts that some countries have shown interest in issuing their own virtual currencies.
However, not all countries share this enthusiasm.
India is not alone in leading a crackdown on cryptocurrency. China, last year, banned initial coin offerings (ICO) which according to a report by the Central Bank were used mainly (90%) for fraud or illegal fundraising. According to analysts this step saved elderly and those from lower income groups from investing their life savings into these fraudulent schemes.
In fact, cryptocurrency has been termed as the greatest bubble ready to burst.
According to Tejjas Bhaleyrao, CEO of Streamerium, “India’s cryptocurrency infrastructure is inadequate. This is equivalent to a Ponzi scheme floating in the name of cryptocurrency and, as evident by some recent incidents, people have been conned of their hard-earned money. In this background it is difficult for India to regulate cryptocurrency and hence I concur with the government’s decision on banning the digital currency in India.”
The recent case of the arrest of bitcoin entrepreneur Amit Bhardwaj who duped over 8000 people to the tune of Rs. 2,000 core in Maharashtra alone is a case in point.
However, this doesn’t mean the end of the road for digital currency. In fact, RBI is looking at adopting “fiat digital currencies” which is a currency which the government has declared as legal tender.
Another thing to be noted is that crypto trading per se has not been declared illegal in the country; this means Investors holding crypto-assets is not illegal as long as Bitcoin or any other cryptocurrency isn’t converted to INR.