In a significant development that could have far-reaching implications for the cryptocurrency landscape in India, the nation’s Supreme Court has sharply criticized Bitcoin trading, likening it to a modern, digital form of the illicit money transfer system known as Hawala. These strong remarks were made during a bail hearing for Shailesh Babulal Bhatt, who stands accused of engaging in illegal Bitcoin trading activities. The apex court also voiced its frustration with the Indian government’s prolonged failure to establish clear and comprehensive regulations for the burgeoning cryptocurrency sector.

Trading in Bitcoin appears to be a sophisticated form of Hawala. In the absence of regulation, it raises serious concerns,” the esteemed bench of the Supreme Court observed, highlighting the judiciary’s growing unease with the lack of a definitive legal framework governing digital assets in the country.

This is not the first instance of the Indian judiciary expressing concerns over the regulatory vacuum surrounding cryptocurrencies. Two years prior, in a similar case involving allegations of investors being defrauded with promises of exorbitant returns from Bitcoin trading schemes, the Supreme Court had already directed the government to articulate its policy stance on cryptocurrencies. However, despite this earlier directive, there has been a conspicuous absence of any significant updates or the implementation of a comprehensive regulatory framework.

Senior advocate Mukul Rohatgi, representing the accused Shailesh Bhatt, attempted to argue that Bitcoin trading is not inherently illegal in India. He cited the Supreme Court’s previous decision to overturn the Reserve Bank of India’s (RBI) circular that had effectively restricted banks from dealing in cryptocurrencies. Rohatgi contended that this earlier ruling established a degree of legality for cryptocurrency transactions.

Judiciary Urges Government to Act on Crypto Regulations

However, Justice Surya Kant, a member of the Supreme Court bench, countered this argument by stating that while he does not possess a complete understanding of the intricate workings of Bitcoin, the court has consistently urged the government to introduce clear and unambiguous regulations to avoid the prevailing confusion and potential for illicit activities.

Justice Kant expressed his concern that while some Bitcoin transactions may be legitimate, the anonymity and decentralized nature of the cryptocurrency also create opportunities for fraudulent activities and illegal money transfers. He asserted that in the absence of proper regulatory oversight, Bitcoin trading in India bears a concerning resemblance to a sophisticated digital version of Hawala.

In response, Senior Advocate Rohatgi argued that Bitcoin possesses genuine economic value, pointing out that in some countries, it is even possible to purchase high-value assets like automobiles using Bitcoin, which he noted is currently valued at approximately ₹82 lakh per coin.

The legal representatives for the Gujarat state government and the Enforcement Directorate (ED) sought additional time from the Supreme Court to respond to the case. They argued that the matter extends beyond mere Bitcoin trading and involves broader issues that require further investigation. The Supreme Court granted this request, giving the government and the ED 10 days to file their reply. The next hearing for this crucial case is scheduled for May 19th. Shailesh Bhatt has been in judicial custody since August 2023, following the Gujarat High Court’s denial of his bail application in February of the same year.

Call for Comprehensive Cryptocurrency Regulations

While India has taken some initial steps towards acknowledging and regulating the cryptocurrency space, such as imposing a 30% tax on profits derived from crypto transactions and including virtual asset transactions under the purview of the Prevention of Money Laundering Act in March 2023, a comprehensive and cohesive regulatory framework remains conspicuously absent.

The Supreme Court’s strong remarks and its comparison of Bitcoin trading to Hawala underscore the urgent need for the Indian government to prioritize the establishment of clear and effective regulations for the cryptocurrency sector. The ongoing ambiguity not only creates confusion for investors and businesses but also raises serious concerns about potential illicit activities and the lack of consumer protection. The court’s demand for a policy update by May 19th puts significant pressure on the government to finally address this critical issue and provide much-needed clarity to the burgeoning cryptocurrency market in India. The upcoming hearing on May 19th could prove to be a pivotal moment in shaping the future of cryptocurrency regulation in the country.