Supreme Court Compares Unregulated Bitcoin Trading to Hawala, Urges Clear Policy

India’s Supreme Court has drawn a stark comparison between unregulated Bitcoin trading and the traditional, often illicit, money transfer system known as Hawala. This analogy underscores the urgent need for a clear and comprehensive regulatory framework for cryptocurrencies in the country. The court's remarks came during a bail hearing for Shailesh Babulal Bhatt, who has been in custody since August 2023 on charges of illegal Bitcoin trading.

The two-judge bench, comprising Justices Surya Kant and N Kotiswar Singh, questioned the central government's delay in providing a coherent policy for regulating virtual currencies. Despite repeated judicial prompts over the past two years, the government has yet to offer a clear roadmap for crypto regulation. This indecision has left a regulatory vacuum that the court finds alarming, particularly in light of the growing popularity of Bitcoin trading in India.

Senior advocate Mukul Rohatgi argued that the Reserve Bank of India’s previous circular banning crypto services was quashed in 2020, implying that his client had not committed a crime. However, Justice Kant pointed out that without proper regulation, crypto trading in India is vulnerable to abuse. He compared Bitcoin trading to money laundering mechanisms like Hawala, highlighting the opaque and unregulated nature of the current system.

The bench gave the Gujarat government and the Enforcement Directorate ten days to respond to the bail application and scheduled the next hearing for May 19. The court’s frustration with the government’s delay is not new. As early as February 2022, the court had asked the government to clarify the legality of cryptocurrency trading and to outline a roadmap for enforcement. Yet, more than two years later, the executive branch appears no closer to resolving the issue.

In January 2024, the Centre informed the court that a decision on regulating cryptocurrencies was still pending. Additional Solicitor General Aishwarya Bhati told the bench that Bhatt’s case involved more than mere Bitcoin trading and required a detailed counter-affidavit. However, the court’s primary concern lay with the vacuum left by indecisiveness, not just the particulars of Bhatt’s case.

Despite the lack of clarity, Bitcoin and other digital assets are not technically illegal in India. In 2022, the country imposed a 30% tax on crypto trading profits and a 1% TDS (tax deducted at source) on transactions. In March 2023, virtual digital assets were brought under the Prevention of Money Laundering Act (PMLA), and exchanges like Binance and Coinbase have since registered with India’s Financial Intelligence Unit. However, beyond taxation and AML compliance, there is no comprehensive legislation. In December 2024, the government told Parliament there was no fixed timeline for introducing full-fledged crypto laws.

While policymakers deliberate, a grassroots crypto boom is underway in India. In non-metro cities across the country, digital assets are gaining traction as both an investment vehicle and a supplemental income source. Young Indians, particularly, are turning to crypto amid stagnant job growth and low wages. This growing interest is translating into significant market activity, with cumulative crypto trading volumes on India’s top four exchanges doubling in Q4 2024.

Despite this enthusiasm, Indian authorities remain deeply cautious. Even in the face of steep taxation and regulatory opacity, Indian investors are investing in crypto, seeing it as a path to financial inclusion and upward mobility. The Supreme Court’s recent remarks serve as a stark reminder of the need for clear regulatory guidelines to prevent the misuse of cryptocurrencies and to protect investors.