In our last article we highlighted evolving challenges of cryptocurrency in India and the lack of regulatory clarification on the same. Ironically while warnings from RBI and GoI had only limited impact, another step of GoI (demonetization) caused a huge spur in bitcoin investments. Mohit Kalra, cofounder of Coinsecure, noted that “And then demonetization happened. Almost immediately, the volumes began to go up.” The consequent rise in bitcoin price also forced Finance Ministry to come up with its statement on 29th Dec 2017 likening Virtual Currency investments to ponzi schemes!
Along with RBI, concerns were raised by Income Tax authorities and Enforcement Directorate as well, as there is a worry that illegal funds or funds for illegal usage/ subversive reasons were finding their ways through these investment channels especially with no clear regulations/ regulatory body to oversee their operations. By end of 2017, the noises for clamping down on bitcoin/ cryptocurrency in India started to gather strength and this was primarily driven by huge surge in bitcoin trading in India. A few key data points will highlight why it suddenly became critical for the authorities to come clear:
- $3.5Bn: Worth of transactions on various cryptocurrency exchanges across India over a period of 17 months (as per Income Tax authority reported as of Feb 8th, 2018)
- 11%: What India accounts of the total cryptocurrency trades globally (as per some parliament discussions)
- 40,000 Cr INR: Total estimated revenue of the top 10 exchanges in India
- ~15: Bitcoin/ cryptocurrency exchanges in India. A few leading are:
- Unocoin: 150,000+ satisfied customers and 350+ million in total revenue as per their website. It had also raised $1.5 Million in 2016
- Coinsecure: More than 2 lakh registered customers with trading volume of ~300 bitcoins or INR 15-20 crore a day. They also raised $1 million last August
- Zebpay: Allows trading in multiple cryptocurrency e.g. Bitcoin, Litecoin, Ripple. Was the first to start bitcoin exchange in India in 2015
- As per some reports, there are around 15 bitcoin/ cryptocurrency exchanges in India dealing with bitcoin, Ethereum and others
The clampdown started by Jan 2018
- Suspension of Accounts (Jan 2018): Top Indian banks (SBI, Axis, HDFC, ICICI and Yes Bank) suspended some accounts of major Bitcoin exchanges in India and initiated higher scrutiny for many other accounts. This obviously impacted the cash flows for the exchanges and led to temporary stoppages to a few
- A load & clear ‘Cryptocurrency is not a legal tender’ (1st Feb 2018): The Finance Minister (Mr. Arun Jaitely) made the following statement in his budget speech “The government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate the use of these crypto assets in financing illegitimate activities or as part of the payment system”
- Income Tax notices: IT authority has send notices to nearly 1 lakh people who had invested in bitcoin but has failed to report the profits. This step was taken immediately after the budget speech.
The very fact that cryptocurrency came up so clearly in budget speech signifies that government now considers that the investment volumes/ value and the risks arising out of it has becomes significant for our economy.
The budget speech though fails to kill the uncertainties around cryptocurrency exchanges and trading. While they are not legal tender and can’t be used for making payments, it is evasive on how to treat it as just an investment/ asset. It also means that it would not fall under purview of RBI for regulatory purpose but probably can fall under SEBI, if at all. For the same, the government has now set up a panel under Secretary, Department of Economic Affairs. The panel is expected to submit its report by March 31st, 2018 and provide a clarity on all issues/ points related to cryptocurrencies along with specific action points.
So; for now, the exchanges are under some stress and the value of bitcoin is also seeing some correction. But unless the Government comes with absolute clarity on how to treat the trading in bitcoins and the assets arising out of it, the primary concerns on shadow finance, illegal use of the platform and potential fraud/ terror funding continues and that is not the best for the stakeholders including the exchanges, investors or the bitcoin holders. The delay till date has not helped the cause and hope sanity prevails soon.
We though opine that allowing creation and trading of an asset that cannot be monetized (either by buying property, or conversion to cash etc.) does not make sense and if one allows that, then only logical argument follows that such an asset will slowly loose its sheen or it becomes the currency for darknet and other similar heinous / undercover activities.
https://cryptonewsmonitor.com/2018/02/04/crowdfire-founders-plan-to-launch-indian-bitcoin-exchange/ (Featured Image sourced from the same link)