India maintained its position at the forefront of global cryptocurrency adoption for the second consecutive year, as investors faced the nation’s rigorous regulatory approach and high trading taxes, according to a report from blockchain analytics firm Chainalysis released on Wednesday.
The report, which assesses adoption across four categories in 151 nations, indicated that India scored well in the use of both centralized exchanges and decentralized finance assets from June 2023 to July 2024.
Since 2018, India has adopted a strict stance toward cryptocurrencies, with the Financial Intelligence Unit (FIU) issuing notices to nine offshore crypto exchanges in December 2023 for not adhering to local regulations.
“India exhibits a fairly widespread adoption of different cryptocurrency assets despite restrictions, suggesting that new entrants to crypto may have found access through services that are not prohibited,” stated Eric Jardine, the research lead at Chainalysis.
“With some of these restrictions beginning to ease, as seen with Binance, we could expect to see a boost in adoption within the country.”
In June, Binance, the largest crypto exchange globally, faced a penalty of 188.2 million rupees ($2.25 million) shortly after it registered with the FIU to restart its operations in India. Meanwhile, crypto exchange KuCoin registered with the regulator in March and was subject to a smaller fine of 3.45 million rupees.
Seven out of the top 20 countries in Chainalysis’ global adoption rankings were located in Central and South Asia, including nations like Indonesia, Vietnam, and the Philippines.
The report indicated that overall decentralized transaction volumes involving retail-sized transfers, under $10,000, were noted in countries with lower purchasing power on a per capita basis.
Despite prohibiting the use of cryptocurrencies for payments, Indonesia recorded substantial trading activity, allowing investment in digital assets. The nation saw trading inflows reach $157.1 billion in the year leading up to July, according to the report.
The Evolution of Cryptocurrencies in India
Amidst uncertainties about the future of cryptocurrencies in India, investments in the unregulated digital asset, particularly Bitcoin, have displayed a remarkable upward trajectory since 2020. Data from various domestic crypto exchanges suggest that over 1.5-2 crore Indians have invested in this asset class, which reached the $10 billion milestone in November this year. The increasing number of cryptocurrency investors indicates a paradigm shift in investment habits in a country traditionally leaning towards gold and other safer investments. As we await the much-anticipated Cryptocurrency and Regulation of Official Digital Currency Bill, let’s review the progression of the virtual asset thus far.
2008: The Birth of Cryptocurrencies
The cryptocurrency journey commenced with the release of a paper titled “Bitcoin: A Peer to Peer Electronic Cash System” by a pseudonymous developer named Satoshi Nakamoto in 2008.
2010: The First Transaction with Crypto
In 2010, two years later, the initial exchange of an item for Bitcoin occurred, with an individual trading 10,000 Bitcoin for two pizzas. This event marked the first time cryptocurrencies had an attached cash value. Following this, other cryptocurrencies like Litecoin, Namecoin, and Swiftcoin began emerging, with the digital asset gaining popularity.
2013: RBI’s Initial Communication on Cryptocurrencies
As interest in crypto investments grew in India, with exchanges like Zebpay, Pocket Bits, Coinsecure, Koinex, and Unocoin starting to emerge, the Reserve Bank of India (RBI) circulated a warning in 2013 about the potential security risks associated with virtual currencies.
2016-2018: Demonetization and RBI’s Crypto Banking Ban
The demonetization initiative inadvertently heightened interest in crypto investments as the rise in digital payments drew tech-savvy consumers toward this asset class. Indian banks initially allowed transactions on crypto exchanges, prompting the RBI to issue another circular in 2017 expressing concerns regarding virtual currencies. By the end of 2017, a warning was issued clarifying that virtual currencies do not constitute legal tender. In March 2018, a draft proposal for banning virtual currencies was submitted to the finance ministry by the Central Board of Digital Tax (CBDT), leading to the RBI releasing a circular in April restricting banks, NBFCs, and payment system providers from engaging with virtual currencies and offering services to crypto exchanges. This severely affected crypto exchanges, resulting in a 99% plummet in trading volumes.
November 2018: #IndiaWantsCrypto
On November 1, 2018, precisely ten years after the release of Nakamoto’s paper, Nischal Shetty, the Founder of WazirX, initiated the #IndiaWantsCrypto campaign advocating for the favorable regulation of cryptocurrencies in India. The campaign’s earliest effects were noticeable when it received encouraging feedback from Rajeev Chandrashekhar, a current Rajya Sabha MP. It was later supported by notable figures including Sathvik Vishwanath from Unocoin, Polygon Co-founder Jaynti Kanani, well-known entrepreneur and investor Anthony Pompliano, and DJ Nikhil Chinapa. Nischal’s tireless tweets and backing for the initiative have gained significant recognition, leading the hashtag to trend on Twitter during the budget session in February when the crypto bill was revealed. As of July 2021, the #IndiaWantsCrypto campaign celebrated 1000 days and continues to thrive, with Nischal’s updates and numerous other crypto supporters participating in its progress.
March 2020: Supreme Court Strikes Down the Crypto Banking Ban
The prohibition was a substantial hindrance, prompting crypto exchanges to submit a writ petition to the Supreme Court, which ultimately annulled the ban by deeming the RBI circular unconstitutional. Consequently, cryptocurrency exchanges reemerged, and the Supreme Court’s decision coincided perfectly with the surge in crypto popularity.
2021: Announcement of Crypto Bill
Nonetheless, the struggle for cryptocurrencies in India was far from over. On January 29, 2021, the Indian government declared its intention to introduce a bill aimed at establishing a sovereign digital currency while also proposing an outright ban on private cryptocurrencies. In November 2021, the Standing Committee on Finance held discussions with the Blockchain and Crypto Assets Council (BACC) along with other cryptocurrency representatives, concluding that while cryptocurrencies should not be prohibited, they ought to be regulated. In early December 2021, Prime Minister Narendra Modi convened a meeting with top officials regarding cryptocurrencies.
The Bottom Line
Based on current signals, a robust regulatory framework is expected to be established to manage cryptocurrencies in India. The decision regarding which regulatory authority will oversee this matter is yet to be made. It appears that the government may classify crypto as an asset rather than a currency. Experts believe that regulations will enhance transparency and accountability within crypto trading platforms. Measures may also be introduced to prevent fraudulent activities and monitor transactions crossing borders. Despite the lingering uncertainty regarding the future of this unregulated digital asset, there has been a significant increase in cryptocurrency adoption over the past two years, making India the largest investor. Therefore, the direction of the crypto journey in India after the parliamentary bill is implemented will be intriguing to observe.
Bitcoin scam: The legality of cryptocurrencies in India explained
Bitcoin and cryptocurrencies have gained renewed attention following accusations against Congress’s Maharashtra president Nana Patole and NCP (SP)’s Supriya Sule. Both individuals are alleged to be involved in “illegal bitcoin activities” to finance their election campaigns. While investigations are ongoing, let’s clarify what cryptocurrencies entail and their position within India’s legal and regulatory framework.
Legality of cryptos
India has not deemed cryptocurrencies illegal; however, they are not recognized as legal tender. Sahil Arora, a partner at Saraf and Partners, explained their status as “legally nuanced.”
“Cryptocurrencies aren’t banned but find themselves in a grey area,” Arora stated. “Trading and investing in digital assets is permitted, but they are not authorized for use as currency. This lack of clarity complicates matters for investors, traders, and even enforcement bodies.”
Arora further remarked, “The government’s tax regulations—like the 30% tax on profits and the 1% TDS—suggest a recognition of cryptocurrencies as financial assets without granting them full legal standing.”
How are cryptocurrencies taxed?
India’s taxation system treats cryptocurrency profits in the same manner as speculative gains.
“The tax framework adds complexity to the situation,” Arora elaborated. “With a 30% tax on profits along with TDS, traders face heavy taxation while navigating an unregulated environment. The Prevention of Money Laundering Act (PMLA) applies if transactions involve undeclared funds or overseas assets lacking proper disclosures.”
“Not declaring crypto earnings can lead to an offense under PMLA,” said Dinesh Jotwani, co-managing partner at Jotwani Associates. “Every crypto transaction must be recorded in the taxpayer’s returns. Failing to disclose can result in prosecution, particularly if tainted funds are used or assets acquired overseas without approval from the Reserve Bank of India (RBI).”
Jotwani stressed the necessity of compliance. “The risks involved are not solely financial but legal as well. Individuals must proceed cautiously and ensure proper declarations to avoid breaching money laundering legislations.”
Regulatory viewpoint
In March 2020, the Supreme Court of India reversed the RBI’s 2018 directive that prohibited banks from providing services related to virtual currencies.
“By nullifying the RBI’s prohibition, the Supreme Court ensured that cryptocurrencies cannot be completely banned,” noted Jotwani. “However, this does not imply that they are recognized as legal tender. It merely allows trading to persist under the current laws.”
Even after the verdict, regulatory clarity is still hard to come by. Arora pointed out the difficulties: “India’s financial regulators, including the RBI, approach cryptocurrencies cautiously because of their fluctuating nature and possible misuse for illegal activities. The RBI maintains that only digital currencies issued by the central bank can be regarded as legal currency.”
Over the last ten years, private cryptocurrencies have gained traction, but global regulators continue to be apprehensive about the associated risks, such as illegal transactions and financial instability.
Anti-money laundering and compliance
India regulates cryptocurrencies as per anti-money laundering regulations. All transactions must be reported in income tax returns, and failing to do so could result in penalties under the Prevention of Money Laundering Act, 2002.
“The speculative nature of crypto trading has turned it into a playground for scams,” Arora stated. “From fraudulent schemes to cyberattacks, there are countless examples, like the 2018 crypto fraud case and breaches on major platforms. These emphasize the need for thorough research and vigilance.”
Jotwani added, “The market’s inherent volatility often transforms it into a speculative instrument rather than a medium for economic transactions. This speculative characteristic, coupled with the absence of legal clarity, makes it a high-risk pursuit.”
What lies ahead for crypto in India?
An inter-ministerial group (IMG), composed of officials from the RBI, Sebi, and the finance ministry, is currently preparing a policy framework for cryptocurrencies. A discussion paper is anticipated shortly, which will seek input from stakeholders and influence India’s long-term position.
At present, crypto assets are not regulated but are liable to taxation and compliance according to Indian law.
What is the recent Bitcoin controversy about?
A significant political controversy emerged in Maharashtra just hours before Wednesday’s Assembly elections. Former IPS officer Ravindranath Patil claimed that cryptocurrency funds, converted from Bitcoins seized by the Pune police during a 2018 investigation, were improperly used to finance election campaigns. The allegations implicate NCP (SP) MP Supriya Sule and Maharashtra Congress chief Nana Patole.
The controversy centers around the GainBitcoin Ponzi scheme, a scam that defrauded thousands across India. Led by brothers Ajay and Amit Bharadwaj, the scheme assured investors remarkable returns on their Bitcoin investments, enticing them with promises of guaranteed payouts of 10 Bitcoins per month. In actuality, the Bharadwaj brothers hid the funds in obscure digital wallets, leaving victims empty-handed.
The Enforcement Directorate (ED) estimated that the scheme amassed Bitcoins valued at Rs 6,600 crore in 2017. The accused claimed these funds would be utilized for Bitcoin mining, luring investors with the prospect of immense profits. Instead, they diverted the illegally acquired cryptocurrency to private wallets, leaving participants with no means to reclaim their investments. The scam, which operated through GainBitcoin and its affiliates, relied heavily on trust and inflated promises to trap individuals.
One victim, who spoke anonymously, told The Indian Express, “I was assured my investment would double within a few months. The returns appeared too enticing to overlook. By the time I understood it was a scam, it was too late.” Similar tales of financial devastation emerged as the Pune police began an investigation in 2018, registering over 40 cases associated with GainBitcoin nationwide.
The Bharadwaj brothers and their associates structured the scheme like a pyramid, urging existing investors to recruit new participants in exchange for commissions. Many unsuspecting individuals invested their savings in the scam, only to find themselves with nothing to show for it. Amit Bharadwaj passed away in 2022, while Ajay Bharadwaj, a pivotal figure in the fraud, was never captured.
The scam also led to accusations of misappropriation against those responsible for the investigation. Former IPS officer Ravindranath Patil and cybercrime expert Pankaj Ghode, who aided the Pune police in the probe, faced allegations of misdirecting Bitcoins seized during the investigation. Utilizing forged blockchain images, they purportedly transferred cryptocurrency from the accused’s wallets into accounts controlled by them. Patil and Ghode were arrested in 2022, adding another layer of betrayal to the scandal.
Many victims felt doubly betrayed—first by the fraudsters and then by those who were meant to deliver justice. “We believed the police would recover our money and hold the fraudsters accountable,” remarked one investor. “Instead, it feels like we’ve been betrayed again.”
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