Supreme Court Compares Bitcoin Trading to Hawala, Calls for Regulation

The Supreme Court of India has drawn a parallel between Bitcoin trading and the traditional Hawala money transfer system, highlighting the lack of regulation and potential for illicit financial activities. The court made this comparison during a bail hearing for Shailesh Babulal Bhatt, who is accused of engaging in illegal Bitcoin trading. The justices expressed concern over the absence of clear guidelines for cryptocurrency trading in India, stating that this regulatory vacuum allows for large-scale illicit financial activities.

Justice Surya Kant, who led the bench, admitted to having a limited understanding of Bitcoin technology but emphasized that the unregulated nature of cryptocurrency makes it susceptible to misuse, similar to a sophisticated variant of Hawala. The court's remarks came as part of a broader debate on the need for a strong legal framework for digital currencies. The bench had previously reminded the central government of its demand to clarify its stand on cryptocurrency regulation, but no significant response has been given to date.

The central government faced criticism from the Supreme Court for its inaction on cryptocurrency regulation. The bench suggested that a proper regulatory regime could help combat the risks associated with Bitcoin trading. Justice Kant described Bitcoin trading as a polished form of Hawala business, underscoring the urgent need for clarity in this regard. During the hearing, Rohatgi, defending Bhatt, argued that Bitcoin trading is not against the law in India and that Bitcoins are not considered tangible versions of cash. However, the bench insisted on the establishment of a defined legal structure to prevent misuse.

The Gujarat government and the Enforcement Directorate have been given 10 days to respond to the matter. Further discussions on Bhatt’s bail and the issue of cryptocurrency regulation are expected to take place at the next hearing on May 19, 2025. The legal status of cryptocurrencies in India has once again become a contentious issue, with the government implementing taxation and anti-money laundering measures for digital assets but failing to establish a comprehensive regulatory framework. The Supreme Court’s comparison to Hawala highlights the potential for cryptocurrencies to be misused for illegal financial activities.

The Supreme Court’s observations on India’s approach to digital currencies reveal a critical gap in understanding and regulation. Bitcoin, being the world’s largest cryptocurrency, operates on a decentralized blockchain network, making it nearly impossible to track transactions without close supervision. The anonymity feature of Bitcoin, while a key advantage, has also been criticized for hiding illicit activities, as pointed out by the court. Hawala, an informal money transfer system, has been targeted by authorities for its use in money laundering and terrorism funding. The court’s comparison suggests that unregulated Bitcoin trading could pose similar risks.

Justice Kant also acknowledged that judicial authorities lack a thorough understanding of cryptocurrencies, which complicates effective regulation. The lack of knowledge among Indian authorities and officials could lead to policies that are either too restrictive or provide inadequate protections. This underscores the need for more education on cryptocurrencies for both the public and the government. As the Supreme Court has openly admitted its limited understanding of cryptocurrencies, it is crucial to familiarize oneself with the possibilities offered by blockchain technology. This education is essential for developing balanced regulations that ensure consumer safety and promote the use of this technology, along with the creation of applications based on it.