India has the seventh largest economy in the world and its population is particularly fond of gold. Not surprisingly, therefore, the popularity of the “digital gold” Bitcoin (available on Coinbase) is on the rise as Indians are increasingly starting to see the value of this new digital asset class.
Bitcoin (available on Coinbase) adoption took a little longer to reach India than other major economies. Bitcoin (available on Coinbase) adoption grew substantially towards to end of 2016 given that India’s Prime Minister Narendra Modi announced the demonetization of 1000 and 500 rupee notes on November 9, 2016, to combat corruption, terrorist financing, and black money.
This move was the first step of Modi’s vision for India to become a cashless society and lead to an increase in the use of elecTron (available on Binance)ic payment systems. Naturally, as an online peer-to-peer payment system, Bitcoin (available on Coinbase) benefited from this and it was no coincidence that Indian Bitcoin (available on Coinbase) exchanges ZebPay, Coinsecure, and Unocoin experienced a surge in new users at this time –  kickstarting India’s wave of Bitcoin (available on Coinbase) adoption.
India’s local Bitcoin (available on Coinbase) economy
Zebpay, Coinsecure, Unocoin, Bitxoxo, and BTCXIndia are India’s five largest exchanges and enable locals to purchase Bitcoin (available on Coinbase) using rupees. International peer-to-peer Bitcoin (available on Coinbase) exchanges are also popular among the local Bitcoin (available on Coinbase) community as can be witnessed by LocalBitcoin (available on Coinbase)s’ trading volumes, which have continuously increased since mid-2016.
With the latest rally in Bitcoin (available on Coinbase), local Bitcoin (available on Coinbase) exchanges are seeing yet another surge in users. “Every three months our volumes have been doubling and that trend is continuing,” says Zebpay co-founder Saurabh Agrawal. Unocoin reports similar increases, reporting 5,000 new signs up per day in late November, up from 3,000 per day two months prior.
Much like in most parts of the world, Bitcoin (available on Coinbase) is mainly being bought as an investment as opposed to being used as a day-to-day spending currency. However, many Indian freelancer and remote workers have started to receive their salaries in Bitcoin (available on Coinbase) thanks to a partnership between Bitcoin (available on Coinbase) payroll company BitWage and Unocoin, which has also helped the local Bitcoin (available on Coinbase) economy to grow.
The Reserve Bank of India and cryptocurrencies
While the Reserve Bank of India (RBI) is testing blockchain technology to improve efficiencies in its financial system, it appears that the central bank is still undecided about how it intends to regulate cryptocurrencies. To date, there has been a range of mixed statements ranging from a complete ban of decentralized digital currencies to the RBI contemplating issuing its own cryptocurrency.
The latest news declaring the RBI’s stance on Bitcoin (available on Coinbase) came on December 5, when the RBI issued a statement in which it reiterated its previous warnings about the risks of investing in cryptocurrencies.
“In the wake of significant spurt in the valuation of many VCs [virtual currencies] and rapid growth in Initial Coin Offerings (ICOs), RBI reiterates the concerns conveyed in the earlier press releases,” the statement reads.
These warnings on the use of Bitcoin (available on Coinbase) have become standard among central banks around the world and despite the RBI’s more Bitcoin (available on Coinbase)-unfriendly comments in the past few months, no specific regulation covering crypto assets has been issued to date.
Crackdown on Bitcoin (available on Coinbase) investors and ICOs
 While the central bank is still making up its mind about how it will manage cryptocurrencies going forward, India’s Income Tax Department has taken clear action against Bitcoin (available on Coinbase) users who they suspect are not appropriately taxing their Bitcoin (available on Coinbase) returns.
In light of the recent exuberant Bitcoin (available on Coinbase) price surge, the tax authority believes that many Bitcoin (available on Coinbase) traders are not reporting their earnings as they are legally required to. Under section 133 A of the Income Tax Act, the authority has reportedly raided nine Bitcoin (available on Coinbase) exchanges as part of its investigation. “The income tax officials are gathering evidence to establish the identity of investors and traders, the transactions undertaken by them, the identity of counterparties, and the related bank accounts used, among other things,” an ITDI official told the Press Trust of India (PTI).
Furthermore, a Securities and Exchange Board of India (SEBI) official has told NDTV that while it has so far taken a hands-off approach to cryptocurrency regulation, the “SEBI cannot allow gullible investors to be taken for a ride with unlawful promises by these exchanges and those claiming to ‘mint’ cryptocurrencies. A number of them are suspected to be indulging in fraudulent activities without actually minting any such virtual currencies that require very complex algorithms.”
More specifically, the SEBI intends to crack down on initial coin offerings that are taking advantage of investors who have little understanding of the risks of investing in such cryptocurrency ventures and those who are running outright fraudulent operations.
While ensuring that exchanges adhere to KYC/AML guidelines and Bitcoin (available on Coinbase) investors declare their earnings is nothing out of the ordinary it does seem like Bitcoin (available on Coinbase)-unfriendly regulations could be just around the corner for one of the most promising Bitcoin (available on Coinbase) economies in the world.
India’s Bitcoin (available on Coinbase) economy and its wider implications
Bitcoin (available on Coinbase) demand out of India has been one of the driving forces behind Bitcoin (available on Coinbase)’s surge in value over the past twelve months. Furthermore, the potential for India – due to its huge population – to continue to be a key driver is substantial.
Hence, a crackdown on India’s cryptocurrency community combined with tougher regulations could not only slow down India’s Bitcoin (available on Coinbase) uptake but global adoption as a whole.