Supreme Court of India Questions Government on Cryptocurrency Regulation

The Supreme Court of India has questioned the central government over its lack of a clear policy on cryptocurrencies. The court's two-judge bench, consisting of Justices Surya Kant and N Kotiswar Singh, highlighted the absence of regulations in the cryptocurrency sector, describing unregulated Bitcoin trading as "nothing but a more polished form of Hawala." This comparison underscores the court's concern about the potential for illicit activities within the unregulated crypto market.

The court's scrutiny came to light during a hearing on a case involving allegations of cryptocurrency fraud. The bench emphasized the need for regulation to provide oversight and curb the use of cryptocurrencies in illegal operations. "Why does the Centre not come out with a clear-cut policy on regulating cryptocurrency?" the court asked. "There is a parallel under-market for it and it can affect the economy. By regulating the cryptocurrency, you can keep an eye on the trade."

The court also noted that banning cryptocurrencies would not be a prudent decision, suggesting instead that regulation could be a more effective approach. "Nobody is saying to stop it, because it wouldn’t be wise for the economy," the court observed. "Banning may be shutting your eyes from ground reality. But what about regulating it?" The court further advocated for expert consultation in addressing the matter, acknowledging that it lacks the necessary expertise to regulate the sector effectively.

Additionally, the court pointed out that the taxation of Bitcoin trading profits at 30% implies a form of legal recognition. "If it is already acknowledged in this manner, why not regulate it," the court questioned. This observation highlights the disconnect between the government's recognition of cryptocurrency profits and its lack of regulatory framework for the sector.

This is not the first time the Supreme Court has addressed the government's slow response to regulating cryptocurrencies. Earlier this month, law authorities highlighted the growing disconnect between the boom in Bitcoin trading and the lack of proper regulations. The same two-judge bench reiterated that the legality of Bitcoin trading remains unclear in India. In February 2022, the court had asked the government to clarify whether cryptocurrency trading was legal and to outline a roadmap for enforcement. However, in January 2024, the Centre responded that a decision on regulating cryptocurrencies was still pending.

The court's questioning of the central government reflects a broader concern about the potential risks associated with unregulated cryptocurrency trading. The lack of clear regulations not only poses challenges for law enforcement but also creates uncertainty for investors and businesses operating in the sector. The court's call for expert consultation and regulation underscores the need for a comprehensive approach to addressing the complexities of the cryptocurrency market.