Following the demonetization exercise in India, the mainstream media is urging the government to control Bitcoin, calling it the safe haven for tax evaders.
India has been in the news quite often these days after the government decided overnight to demonetize existing high-denomination banknotes. The move, widely publicized as a step towards combating the country’s black economy was successful in causing widespread distress amid a shortage of valid currency.
The loss of confidence in the Indian Rupee among a significant portion of the population drove them towards Bitcoin as a store of value. The increased demand for Bitcoin in the country drove the price by upwards of $200 in comparison to global markets. However, thanks to the coverage by cryptocurrency news outlets, the mainstream media houses in the country decided to offer their own versions of the story, but with a twist. They labeled Bitcoin as a safe haven for people to dodge the demonetization move.
Since then, various media outlets have been spinning half-baked stories about how Bitcoin is being used in India to launder money, avoid taxes and so on. None of the outlets seem to have paused to find out the ground reality of Bitcoin adoption in the country.
In the current Bitcoin ecosystem, it is virtually impossible for anyone to convert their old, worthless banknotes to Bitcoin for safe keeping. For starters, those who want to buy Bitcoin in India have to do so on any one of the “Big Four” exchange platforms. All these platforms have strict KYC frameworks in place, similar to the ones followed by mainstream banks. Also, in order to buy Bitcoin, the user will have to first deposit the funds into his/her account on these exchanges through internet banking channel.
Even if somebody did decide to find a way to deposit cash, they were required to provide their KYC and PAN credentials to the banks. Anyone with half a brain will think twice before doing that (if their intention is to keep the funds untraceable). Given the shortage of currency and the crowded banks, they would have had a limited window to attempt a futile exercise. Even if someone did manage to purchase Bitcoin with worthless pieces of paper, there are limited ways one can spend it in the country due to poor adoption among merchants. This leaves Bitcoin holders with only one option — to sell and withdraw INR into their Indian bank accounts which is accountable for taxes. Instead of going through all the trouble, they could have rather deposited money directly to their bank accounts when they still had a chance.
The government, through this exercise and constantly changing rules, has conveniently branded everyone as a potential tax evader and a criminal unless they prove otherwise. It has gone so far to even make it illegal (a punishable offense) for people to have old currency notes in possession. Fueled by mainstream media coverage of Bitcoin, it won’t be a surprise if someone in the position of power who has no clue about Bitcoin decides to implement cryptocurrency regulations overnight.