The Supreme Court of India has raised serious concerns over the government’s failure to regulate cryptocurrencies despite imposing a 30% tax on digital assets like Bitcoin. The court warned that the continued use of unregulated cryptocurrencies poses potential risks to the country’s economic stability.

“A Parallel Economy”

During a hearing related to an ongoing investigation into a Bitcoin transaction, Justice Surya Kant criticised the government’s contradictory stance on crypto. He noted that while the government is taxing cryptocurrencies, it has yet to establish a regulatory framework for their use.

“This is a whole parallel economy running with such coins, and it is a danger to the economy of the country,” Justice Kant said. He added, “If you can tax it at 30%, also please regulate it as you have recognised it by taxing it.”

Government Indicates Possible Review

Responding to the court’s remarks, the Additional Solicitor General of India, a senior government legal representative, stated that the matter would be reviewed. “Will take instructions, my lord,” he said, indicating the government may consider reassessing its approach to cryptocurrency regulation.

The exchange took place during a May 5 Supreme Court hearing, where both Justice Kant and senior lawyer Mahesh Jethmalani commented on the growing adoption of cryptocurrencies globally.

Global Usage and Misunderstandings

Jethmalani pointed to international acceptance of Bitcoin, stating, “In Europe, you can walk into a car showroom and buy a car using just one Bitcoin.” While such transactions are technically possible, they are not common and usually limited to niche markets or specialist dealerships.

He also referred to the mysterious creator of Bitcoin, inaccurately claiming: “It was created by someone from Japan who used a fake name.” In reality, Bitcoin’s creator, known by the pseudonym Satoshi Nakamoto, remains unidentified and is believed to have used a Japanese-sounding alias.

Worries Over Misuse and Illegal Activities

Justice Kant further highlighted concerns around the misuse of cryptocurrencies for illegal purposes. “There is some system of rules that applies to this,” he said, alluding to the need for better oversight.

He also commented ambiguously on the authenticity of Bitcoin, stating, “Some Bitcoins are genuine, but some might not be.” While there is no such thing as a fake Bitcoin due to its decentralised and cryptographically secure nature, the judge’s remark likely referred to its use in unlawful activities rather than suggesting the existence of counterfeit tokens.

He concluded by warning that cryptocurrency has “also become a possible way to do illegal business.”

India’s Regulatory Void

Despite taxing digital assets and requiring firms to report certain activities to financial regulators, India has yet to implement comprehensive legislation to govern the cryptocurrency sector. This regulatory void has sparked criticism from both industry insiders and policymakers, who argue that clarity is essential given the asset class’s rapid growth.

As crypto adoption increases globally and within India, the Supreme Court’s intervention signals growing judicial pressure on the government to create a structured and transparent regulatory framework for the sector.