Submitted by: Shaivi Shah and Akshita Singh


The term “currency” can be defined as the order of money or exchange in place in a country. Over the years currency has developed and the latest product of its evolution is cryptocurrency. Arithmetic working and digitalization form the basis of this currency rather than government regulation. It is supported by blockchain technology which refers to a peer-to-peer, decentralized technology. Currencies are regulated differently in different countries. Cryptocurrencies are no different in this regard and each country has its own unique stance on the same. While countries such as China have flat out banned cryptocurrencies, countries like Japan have kept an open mind and provided regulations for their trading. India, on the other hand, finds itself in the uncomfortable position of being in the middle, where the government has not banned cryptocurrencies absolutely but also has not provided any clear guidelines to regulate it. The speculation with regard to the legality of cryptocurrency in India has been rife sine the year 2017. This paper explores and investigates the legal status of cryptocurrencies in India. Further, a SWOT analysis has been conducted in order to truly understand whether the pros would outweigh the cons or vice-versa if cryptocurrencies were to be made legal in India.


SWOT Analysis can be defined as a mechanism to evaluate a topic on the basis of its strengths, weaknesses, opportunities and threats.[1] While the strengths of cryptocurrency distinguish it from other traditional modes of currency, opportunities include some of its enticing features that can gives it an upper hand. The weaknesses, however, hamper its optimum utilisation while threats bring forth the factors that could curb its further growth.[2] The authors, in their research, have attempted to elaborate the various nuances of cryptocurrency in order to assess its position in India.


The digitization of currency can have major benefits. The underlying cause behind the popularity of cryptocurrency in the recent years it its alluring feature of privacy from the government and the world at large. Considering the amount of significance which citizens associate with freedom and privacy in the recent years, cryptocurrency has emerged as a valuable asset as it allows the transactions remain outside the purview of central surveillance. With the help of peer to peer technology and decentralization, the movement of currencies becomes a private affair without involving any third financial institute.[3] This feature does turn out to be massively in favour of the citizens of India who have always reflected their disapproval in the Central Monitored System.[4]

The basic premise on which the virtual currency functions are the codes and keys. This brings us to our second advantage which is the feature of anonymity. The transactions take place under the garb of codes. Public can view the amount of money that is being transferred, however, the names of the parties remain inaccessible. This further leaves almost nil space for fraud as the transactions can neither be counterfeited nor reversed arbitrarily.[5]

Additionally, the absence of any exchange or interest rates in case of cryptocurrency allows parties to negotiate smoothly in the international arena. This enables the users to save time and money.


The benefits provided by the cryptocurrency do not negate the uncertainties it poses. Firstly, is the highly volatile nature of the cryptocurrencies due to which a number of corporations do not deal with them. It becomes extremely difficult to predict the value of cryptocurrency. For instance, the prices of Bitcoin touched 2,700 USD in May 2017, followed by a sharp correction, shedding around 30% of its value in the next two days.[6] These fluctuations are mainly caused due to factors related to geopolitical events and government regulations.[7]

Secondly, the much valued anonymity and secrecy which has been brought by the cryptocurrency has caused further threats to the global financial system. The non-traceability of these virtual currencies has made them highly suitable for money laundering, cybercrimes and terrorism.[8] The vast internet infrastructure and accessibility which is provided by India makes it all the more easier for these law breakers to use Bitcoins to carry out their operations unlike in the middle-East which has a highly poor connectivity.[9]

Without any state regulation, the digital accounts can also fall prey to theft and hacking.[10] These online transactions become a perfect medium to invest black money. Since the government doesn’t keep any record of the assets, the State is unable to tax such hidden assets and the count of municipal bonds, partnerships and annuities remains unknown, in the anonymous currency exchanges.[11] Consequently, the users lose out on the benefit of securing their retirement accounts from being taxed.


There are approximately 2.2 billion individuals who have access to mobile phones and internet services and not to traditional money exchange.[12] Under such circumstances, incorporating the virtual currency in everyday business becomes easier . A knowledge of the virtual world along with a basic understanding of the currency system provides immense scope to the cryptocurrency, especially in India where it’s the youth which forms a major part of the population.[13]

While the Reserve Bank of India does not recognize cryptocurrency in its jurisdiction, it does aim at drafting a centralized policy on cryptocurrency. It further aims to find an alternative to a completely unregulated mechanism as has been the approach of the U.S. The U.S. Security Exchange Commission has attempted to bring the Decentralised Authority Organisations (DAO) which brings virtual currency services under an experimental structure of regulation. This regulatory initiative is ‘simple agreements for future tokens’ (SAFT). The proposed plan attempts to identify the cryptocurrency as a security by putting the Initial Coin offerings of a DAO under the Howey’s Test where the Supreme Court determined the elements constituting an investment contract, thereby recognising the contracts as assets.[14]

Moreover, the Blockchain and Cryptocurrency Committee of India is in talks with investors to come up with a more formalised and regulated form of currency and allows the customers to understand the transactions better. Plus, considering the rising interest and enthusiasm of the public, including technology entrepreneurs and legislators, barring cryptocurrencies in its totality is unlikely to happen in India.


In 2013 and 2017, the RBI had issued a warning to the public dealing with cryptocurrencies in India on legal, financial and security-related threats.[15]  The umpteen number of cyber frauds and the estimation of the ICOs leading to misrepresentation has further led to the banning of cryptocurrencies in China, Bangladesh and Indonesia. While the European nations have not taken a firm stance on the same, their put forth their hesitation on the topic by labelling “Buyers Beware” on the digital transactions.

Further, as of April 2019, the Indian Lawmakers have adopted a hostile approach towards the cryptocurrencies and have suggested an ‘urgent ban’ of the digital currency.[16] The security risks in terms of terrorism, money laundering and left-wing extremism pose a major risk to the economy by threatening its further growth and development.[17] Given the threats, along with reasons stated previously, cryptocurrencies are also emerging as a new funding source for terrorist outfits.[18]

Decoding the Legality of Virtual Currencies: India’s Journey

After gaining an understanding of the subject, the authors would move on to discussing the legal status and the scope of cryptocurrency in India. The official comment made by the Indian authorities with regard to the legality of cryptocurrencies was on 1st February, 2018 when the finance minister, Arun Jaitley, presented the nation’s financial budget.[19] His statement seemed to have sounded the death bell for cryptocurrencies in India when he said,“The government does not recognise cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payments system”[20]

While the knee-jerk reaction to this would be to assume that the virtual currencies had been declared illegal by the government, the truth of the matter was that firstly, cryptocurrencies were simply not considered to be legal tender and thus those who invested in it would have to do so at their own risk. Secondly, no redressal could be sought with regard to transactions involving cryptocurrencies.[21]Essentially, cryptocurrencies could not be used as a reliable means of payment and settlement.

On 6.04.2018, the RBI took a firmer stance, by releasing a circular which banned banks and other regulating entities from dealing with companies involved in cryptocurrency transactions.[22]While this seemed to determine the government’s position toward virtual currencies in India, it couldn’t be considered to be entirely impactful.The RBI managed to cut off access to capital funding from banks, however, a market study[23] showed that the value of transactions dealing with bitcoin increased following the issue of the circular.

As of 2019, the inter-ministerial panel that had been formulated to determine a regulatory framework for cryptocurrencies is in the final stages of its deliberation. The panel had been set up in 2017 and was headed by Subhash Chandra Garg, Secretary, Department of Economic Affairs. It has come up with a draft of the ‘Banning of Cryptocurrencies and Regulation of Official Digital Currencies Bill, 2019’.[24]Also, as per the latest developments, a penalty of 10 years of imprisonment has been proposed for those who “hold, sell, transfer, issue or deal in cryptocurrencies directly or indirectly”.[25]

Regulation Woes: The Cut Across Jurisdictional Boundaries

While it is evident that the RBI has taken control of the narrative when it comes to the regulation of cryptocurrencies, the SEBI has some authority in regulating cryptocurrencies as well. We must thus understand the technical aspect as well as the practical aspect.


Section 2(h)(ii)(a) of the Securities Regulation (Contracts) Act, 1955[26] gives the Central Government the power to decide and declare what may be considered as securities. Thus, the SEBI potentially has the power to decide whether cryptocurrencies may or may not fall within the ambit of securities. This would consequently determine their legality. With regard to the Reserve Bank of India Act, 1934, cryptocurrencies fall within the definition of derivatives as per section 6A(h). They fulfil the definition as they are considered to be instruments and they derive their value from “a change in combination of various factors”.[27] The factors in question are of variable nature as per sub-clause (h). for example, factors such as demand, recognition and legality affect the value of virtual currencies.

Thus, via the two legislations we can see that the SEBI as well as the RBI have a claim over regulating cryptocurrencies.[28]

Practical Aspect

The RBI is controlling the regulation of cryptocurrencies as seen after the issuance of its April 2018 circular, however certain inconsistencies in their efforts have been noted. In response to an RTI filed by lawyer, Varun Sethi[29], it was found that the RBI had not undertaken sufficient research before issuing its infamous April 2018 circular. It did not take the effort to properly understand the working and usage of cryptocurrencies and didn’t bother to consult governments or reserve banks of other countries. Further, the trend internationally in this regard has been that central banks do not govern the virtual currency sector.

On the other hand, the SEBI has taken initiative and shown interest in understanding the working of cryptocurrencies in India. It recently sent its officials on study tours to the U.K., Japan and Switzerland to learn about their approach to virtual currencies.[30] Further, if the school of thought wherein cryptocurrencies are considered to be commodities is followed, the SEBI becomes the default regulator.

Thus, we can see that each government body has suitable arguments to claim jurisdiction over the regulation of cryptocurrencies, however till a clear announcement is not made by the central government, clarity on the same cannot be achieved.

The Way Forward

While the legitimacy of cryptocurrencies hangs in the balance, online cryptocurrency exchanges have mushroomed in India. These platforms resort to customer identification processes such as Know Your Customer (KYC) and other monitored methods that look out for money laundering and terror financing. However, owing to the looming risks, one needs to come up a with a more stringent mechanism to ensure adequate security while dealing with virtual currency. The prominent security threats, in the form of terrorism and left wing extremism, could bring in hesitation in the early stages of adoption of the digital currency. For a developing nation such as India, cryptocurrencies come with their own benefits and risks. An ideal situation for India would be a regulated, though limited in nature, surveillance that does not leave any scope for massive security threats. Considered steps along with consumer protection mechanisms is the key to ensuring an optimum utilisation of this disruptive innovation called cryptocurrency.

[1]W Grassl& J Pahl, Meta-SWOT: Introducing a New Strategic Planning ToolJournal of Business Strategy 12, 21 (2012).

[2] id.

[3] Supra note 1

[4]Bhairav Acharya, Understanding Surveillance and Privacy in India, The Centre for Internet and Society (June 1, 2019, 10:30 pm),

[5]Benefits of Cryptocurrency, Cryptosrus Insider(June 2, 2019,11:05 PM),

[6] Wassim Bendella, Insufficient Understanding of Cryptocurrencies Results in Their Volatility, The

Cointelegraph (June 2, 2019, 12:23 PM),


[7] Jonathan Todd Barker, Why Is Bitcoin’s Value So Volatile? (June 3,2019,10:09 PM)

[8]India needs to check the use of cryptocurrencies, The Economic Times (June 3, 2019, 11:00 PM)

[9] id.

[10] Usman W.Chohan, Cryptocurrencies: A Brief Thematic Review, Economics of Networks Journal 9 (2017).

[11] Warren Buffet, Cryptocurrency will come to a bad ending, Cnbc (June 3. 2019, 2:31 PM),

[12]Mobile data and operators,Gsma (June 4, 2019, 10:10 PM),

[13] Youth in India, Social Statistics Division (June 4, 2019, 10:25 PM),

[14] SEC v. Howey, 328 U.S. 293 (1946).

[15]RBI cautions users of Virtual Currencies, Reserve Bank of India (June 5, 2019, 7:05 PM),

[16]Indian Government to ban cryptocurrencies, Business Today (June 5, 2019, 7:37pm),

[17] Stan Higgins, India Inches Closer to Developing Cryptocurrency Rules, Coindesk (June 5, 2019, 8:05pm),

available at

[18] id.

[19]Sindhuja Balaji, India is not Banning Cryptocurrency,what it is doing instead, Forbes (Jun.4, 2019, 7.30 PM),

[20]Nupur Anand, Arun Jaitely has just killed India’s Crpytocurrency Party, Quartz India(Jun. 4, 2019, 7.42 PM),

[21]Sannat Chandana, Legality of Cryptocurrency in India, IndiaCorpLaw (Jun. 4, 2019, 7.55 PM),

[22]Reserve Bank of India, (Jun. 5, 2019, 7: 57 PM)

[23]Rohan Abrham, Why RBI is Fighting a losing battle against Cryptocurrencies, Money Control(Jun. 4, 2019, 7.58 PM),

[24]Karunjit Singh, Government discuss Draft bill to ban Cryptocurrencies, ECONOMIC TIMES (June 4, 2019, 8:00 PM),

[25] id.

[26] The Securities Contracts (Regulation) Act 1955, § 2(h)(ii)(a), No. 42, Acts of Parliament, 1956.

[27] Reserve Bank of India(Amendment) Act 2006, § 6A(h), No. 26, Acts of Parliament, 2006.

[28]Supra note 3, at 1.

[29]Shashank V, RTI reveals RBI did not do enough research before banning cryptocurrencies,Crypto Dost(Jun. 4, 2019, 8.15 PM),

[30]SEBI sends team abroad to study Cryptocurrencies initial coin offering, Business Standard(Sep.7, 2018, 1:35 PM),


All fields are mandatory.