The Finance Minister’s statement in Budget 2018 that cryptocurrencies are not valid tender, cast down hopes of the country’s growing cryptocurrency market, which had been lobbying for recognition and regulation.
At present, the Indian government is focused on deciding clear regulations for trading of cryptocurrencies, In April, the government had constituted an inter-disciplinary committee to submit a report on handling cryptocurrencies and challenges of money laundering. Based on the report, another committee was constituted with representatives from the RBI, NITI Aayog, Sebi and others., a policy framework is expected.
India does not yet have clear regulations on cryptocurrencies and exchanges, the Government has however maintained that virtual currencies are not held as legal payment instruments in the country, but also did not term these cryptocurrencies as illegal.
Since 2013, the Reserve Bank of India (RBI) has reiterated its cautionary notification on cryptocurrencies for retail investors, with warnings of “potential economic, financial, operational, legal, customer protection and security related risks” associated in dealing with such virtual currencies including bitcoins. However, there has been no regulatory action as it is not easy to determine who regulates the new technology of virtual currencies.
The Indian Government had to intervene as a lot of virtual currencies saw a significant rise in their value in the start of 2017 as a result of which the threat of price volatility, speculative trading, and hack attacks all called for stricter regulation from the government on virtual currencies.
It is estimated that the number of people in India who either presently use a cryptocurrency or have in the past held a cryptocurrency is about 5 million and this number is only growing.
Cryptocurrencies work on the blockchain technology, which uses a decentralized network. Blockchain technology uses a digital ledger to securely keep a record of each transaction between users within its system. Regulatory framework on cryptocurrencies in India is taking time because of the nature of the technological innovation and confusion over who should regulate it.
The uncertainty and volatility in price of cryptocurrencies has also led to some banks not allowing retail investors to deposit money that they have earned from trading on bitcoin exchanges, according to a 28 January report by The Hindu Business Line.
Further, the threat of cryptocurrency hacking attacks reoccurring gives enough reason for the Indian Government to remain skeptical of cryptocurrencies.