Cryptocurrencies: Neither Currency Nor Commodity

The cryptocurrency market has been a hot topic since the first time it was recorded in India. Since then, this highly volatile market has grown manyfold. The fate of cryptocurrency has seen many highs and lows. In the initial years, the Indian government’s reaction was one of extreme caution due to the risks associated with virtual currencies. Due to the uncertainty and lack of knowledge among the people of India, this form of digital currency might have the ability to aid illegal activities like money laundering, tax evasion, etc.

READ: Cryptocurrency; Playground for Cyber Warfare

On April 6, 2018, the Reserve Bank of India (RBI) prohibited the dealing of virtual currencies in India from immediate effect. The Supreme Court in 2020 overruled this order, stating that it was disproportionate and formed an unconstitutional restraint on trade. At present, an individual can sell or purchase cryptocurrency, but there exists no legal framework available to back it, making it a lot riskier. It must be emphasized here that since neither the RBI nor SEBI have any legal framework which allows them to directly regulate cryptocurrencies. Technically, cryptocurrency is neither a security nor asset as claimed by the identifiable users of such cryptocurrency — which keeps the RBI and SEBI from applying their existing powers to it. However, the RBI still holds a strong stance against this form of currency due to its ability to create strong instability in the market.

READ: CRYPTOCURRENCY AND MONEY LAUNDERING

After a series of prolonged debates, the Ministry of Finance drafted the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. This was a bombshell for all investors in cryptocurrency. The primary aim of this Bill is to ban on all the private cryptocurrencies in India. However, aside from this it also paves the way for an official digital currency that will be completely regulated by the RBI. A high level inter-ministerial committee was set up and its suggestions were called for before drafting the current Bill.

Originally posted on www.kpalegal.com on 28th July 2021

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