Budget 2018: End of the road for cryptocurrencies in India?

In his Budget speech Finance Minister Arun Jaitley stated that the Government of India doesn't recognise cryptocurrencies as legal tenders.

Cryptocurrency — Big banks, including JP Morgan and Goldman, have dabbled in the technology behind bitcoin, known as blockchain, and opined on its potential to reshape industries

Last Updated : Feb 02 2018 | 1:10 PM IST

Investors who were looking for some kind of legitimization for cryptocurrencies in India will be disappointed with the Budget. In his Budget speech Finance Minister Arun Jaitley stated that the Government of India doesn’t recognise cryptocurrencies as legal tenders. He further stated that the Government will take all measures necessary to stop usage of these virtual currencies in financing illegitimate activities or as part of the payments system. Few weeks before the Budget, the Finance Minister had advised people against the usage and investing in cryptocurrencies after equating them with Ponzi schemes. Although no specific ban on Bitcoin or any other cryptocurrency was mentioned in the Budget speech but what is likely to cause concern amongst cryptocurrency users and investors in the fact that the FM categorically mentioned that the government will take steps to eliminate the usage of the same.

Government Regulations and Cryptocurrencies in India

For long clarity was sought on the status of cryptocurrencies in India, which now hopefully the Finance Minister has provided today. But in the meantime Bitcoin and other cryptocurrencies have grown to be a phenomenon in India. One can imagine the scale of usage of virtual currencies in India merely by the fact that one in every ten Bitcoin transactions that happen throughout the world takes place in India. Government’s stance on Bitcoin and other virtual currencies was rather known. The Government in the past has indicated that it remained paranoid about the usage of cryptocurrencies is money laundering, tax evasion and financing of illegitimate activities such as terrorism and more. Recently the IT department had also send notices to 4-5 Lakh HNIs who have indulged in Bitcoin or other cryptocurrency trading. Reports have also emerged about banks freezing accounts of cryptocurrency exchanges and the registrar of companies (ROC) stopping registration of companies which intended to operate in the said domain.

Future of Bitcoin usage and trading in India

It is believed that in the last 17 months $3.5 billion worth of transactions in virtual currencies has taken place in India. After today’s announcement experts believe that a clampdown on usage of Bitcoins and other cryptocurrencies as a payment method is in the offering. How the Government goes about doing it is something one will have to wait and see. Although legitimate businesses both online and offline will no longer accept Bitcoins and other cryptocurrencies as a payment instrument now but an individual still do have the option of using them outside of India. Also, even after today’s announcement in the Budget speech clarity would be still required about the functioning of cryptocurrency exchanges and mining centres in India. But today’s Budget speech by Finance Minister Arun Jaitley made one fact totally clear that the future of unregulated virtual currencies is bleak in India. Expect closure of India based cryptocurrency exchanges and mining centres in India in the near future. Also anticipate either some action or non-corporative attitude by Indian banking sector towards dealings in virtual currencies. Government may also choose to block websites related to cryptocurrencies. Even Facebook has recently announced that to fight online frauds and scams it will no longer accept and display adverts related to cryptocurrencies.

RBI to issue its own Cryptocurrency
The success of Bitcoin in India had even prompted the Reserve Bank of India (RBI) to contemplate a plunge in the world of cryptocurrencies in the past. Even a committee was established to study the implications, worldwide regulations and other workings and details of virtual currencies. It was a given fact that both the Government and the RBI were not comfortable with the growing usage and acceptance of unregulated Bitcoins. Thus an authorised cryptocurrency as an alternative to Indian Rupee for digital payments and transactions was in the making. So, now after the FM’s Budget speech what will happen to the RBI’s initiative? The FM in his Budget speech has stated that the government would rather encourage blockchain technology in payment systems. Thus the RBI’s Cryptocurrency touted to be named Laxmi after the Goddess of Wealth may still see the light of the day in the near future.