In the 36 hours following the FM’s union budget speech on February 1, the value of bitcoins plummeted by an astonishing 25.5 percent, all thanks to the public frenzy following Arun Jaitley’s announcement of cryptocurrency not being recognized as a legal tender.
But don’t flush out those bitcoins just yet. Ajeet Khurana, head of blockchain and cryptocurrency committee of the Internet and Mobile Association of India (IAMAI) plays the myth-buster and lays to rest the rumors around the legality of cryptocurrency and its future in the Indian market.
The graph shows bitcoin value from Jan 31 to Feb 3. It shows steep fall as an aftermath of the budget on Feb 1 and through Feb 2. Image courtesy: http://xe.com/
The fact that cryptocurrency is not a legal tender is not new. Barring Japan, cryptocurrencies all across the globe are not legal tender.
As per the definition of the 2007 and 2011 Coinage Act, only currency notes and coins are legal tender. “Checks, debit cards and credit cards are also not legal tender, per se, but are part of the payment system,” explains Khurana.
The part where Jaitley said that the government will come down heavily on the use of cryptocurrency for financing illegitimate activities does not imply that the government will crack down on cryptocurrency trading and possession.
“My suspicion is that the number of participants entering the market through the formal mechanism, for e.g. Nasdaq or NYSE, might cast an upward bias on the price. When the market begins to see that there's some resilience to the fall, people might get some confidence.”
Ajeet Khurana, Head - blockchain & cryptocurrency committee, IAMAI
However, the FM's budget speech has added a new shade to the entire discussion. This is the first time the FM has used the term "crypto-asset". This could imply that the classification of cryptocurrency as an asset is probably in the offing.
The head of the department of economic affairs, Vivek Garg had once stated that the department has a problem with calling it "cryptocurrency", as it's not really a currency, but an asset.
“As bitcoins can be classified in so many different ways, we look upon the government to tell us whether it's a business income, capital gain, or stocking trade,” says Khurana.
The government has now made it very clear that cryptocurrency cannot be used as a substitute for money. Bitcoins can still be used for barter, and barter is not illegal in the eyes of law.
Additionally, the government has stated that it will form a committee to assess cryptocurrency, and based on its recommendation, the government will take a view point.
“We're actually in a very positive frame of mind, as nothing negative has been stated. Additionally, there's an indication that there may be something positive in the days to come,” says Khurana.
Over the last few weeks, bitcoin has seen a lot of negative sentiment coming to the market. Additionally, the price of bitcoins has become too high – what the market refers to as an "overbought situation".
Khurana reveals that the bitcoin value in the Indian market is slightly different from international markets as the pricing is not identical. He recalls witnessing a 50-fold growth in bitcoin value in a span of 15 months.
“It is unlikely that we could see a growth of this magnitude. The level of awareness around the bitcoin market suddenly shot up because of renewed media interest,” says Khurana.
“It is unlikely that we could see a growth of this magnitude. The level of awareness around the bitcoin market suddenly shot up because of renewed media interest.”
What makes bitcoin an interesting commodity is that the supply is fixed - 1800 new bitcoins are created every day. Now owing to sudden spike in demand, the pricing has changed.
The country witnessed the value of bitcoins falling from Rs 8.5 lakh to around Rs 5 lakh in the 36 hours following the budget. This primarily resulted from people misinterpreting what was stated in the budget. However, Khurana expects recovery to the pre-budget level in a week's time.
“My suspicion is that the number of participants entering the market through the formal mechanism, for example Nasdaq or NYSE, might cast an upward bias on the price. When the market begins to see that there's some resilience to the fall, people might get some confidence,” states Khurana.
“I'm quite positive that we won't be seeing that happening at all. Even from the government's point of view, if a person makes a capital gain through trading bitcoins, they can tax the person as usual,” says Khurana.
So, the question of banning cryptocurrency would come up if the Indian monetary system was at risk. But since it's not a legal tender, it is decoupled from the Indian monetary system.
As bitcoin is an entirely decentralized currency, Khurana says that he is actually quite surprised when people talk about banning bitcoins.