Context:

Recently, the Supreme Court of India has raised serious concerns about the unregulated nature of Bitcoin trading, likening it to a “refined way of Hawala business.” The remark came during a hearing on the bail application of Shailesh Babulal Bhatt, who was arrested for alleged involvement in illegal Bitcoin transactions.

·        Hawala is an informal, unregulated system of money transfer that has been linked to various illegal activities, including money laundering, terrorism financing, and tax evasion. It operates outside of formal banking systems and relies on a network of brokers who facilitate value transfers without physically moving currency. 

About Bitcoin:

Bitcoin is the first decentralized cryptocurrency. Based on a free-market ideology, bitcoin was invented in 2008 when an unknown entity published a white paper under the pseudonym of Satoshi Nakamoto. Use of bitcoin as a currency began in 2009, with the release of its open-source implementation.

Crypto currency Trading regulation in India:

While cryptocurrency trading is not currently illegal in India, the lack of a clear regulatory regime has created significant ambiguity. In 2020, the Supreme Court struck down the Reserve Bank of India's circular that barred banks from servicing crypto businesses. However, since then, the central government has not enacted a comprehensive policy to regulate the use and trade of digital assets like Bitcoin.

• The Finance Act, 2022 introduced the term Virtual Digital Assets (VDAs) to classify cryptocurrencies and NFTs for tax purposes only. This classification does not confer legal status or regulatory recognition.
•  Financial Year 2022–23, profits from crypto trading are taxed at a flat rate of 30% under the Income Tax Act, with 1% TDS (Tax Deducted at Source) on transactions exceeding a specific threshold.
• Unlike stock markets (regulated by SEBI) or banks (regulated by RBI), there is no dedicated regulatory authority overseeing cryptocurrencies or crypto exchanges in India as of now.
• Currently, there are no crypto-specific consumer protections or AML (anti-money laundering) guidelines. Exchanges are expected to follow generic financial laws, but there are no uniform standards or enforcement mechanisms.

Conclusion:

The Supreme Court’s observations serve as a critical reminder of the urgent need for India to address its cryptocurrency policy vacuum. As Bitcoin and other digital assets continue to gain traction globally, India must decide how to harness the potential of blockchain technology while safeguarding against financial crimes.