Cryptocurrency circular: Unintended consequences?

Cryptocurrencies use cryptographic functions rather than central banks or ledgers to validate transactions and are an increasingly important part of the global financial landscape. The absence of central regulation or records enables transactions in cryptocurrencies to enjoy varying degrees of anonymity. This, along with rising prices of popular cryptocurrencies such as bitcoin, has made mining, using and trading in them increasingly attractive in India.

Cryptocurrencies are regulated to varying degrees. While some jurisdictions ban transactions in cryptocurrencies outright, citing money laundering concerns, others have been content to tax them, or treat them as “means of payment” but not legal tender.

The legal position of cryptocurrencies under Indian law has evolved a lot.

In 2013 and 2017, the Reserve Bank of India (RBI) released three press releases on the subject. While the press releases did not prohibit or restrict transactions in cryptocurrencies, or indeed clarify their legal status, they warned about substantial volatility, money laundering and risks to customer protection.

In January 2018, income tax authorities conducted raids on cryptocurrency exchanges in India. In February, Citibank India and HDFC Bank prohibited use of their credit and debit cards to buy cryptocurrencies.

Cyril Amarchand Mangaldas is India’s largest full-service law firm. Arun Prabhu is a partner at Cyril Amarchand Mangaldas. He was assisted by Deepthi Bavirisetty and Siddharth Manohar.