As government delays cryptocurrency regulation, scams abound

In June, businessman and Bollywood celebrity Shilpa Shetty’s husband Raj Kundra was summoned by ED in country’s biggest crypto scam which saw bitcoin firm GainBitcoin’s founder Amit Bhardwaj, reportedly duping investors of around Rs 2,000 crore.  In a scheme, 8000 investors were promised massive returns on investments with bonuses for introducing other investors. However, investors didn’t receive what was promised.

That month, police in Maharashtra’s Thane raided the offices of Money Trade Coin, which was accused of being a front for a global fraud, misleading investors with promises of high returns, real estate and foreign passports.

Investors in OneCoin, another company that launched an investment scheme, found out that the company was fake and that it didn’t even have a registered office address or a bank account.

In April, 438 bitcoins worth Rs 20 crore were stolen from Coinsecure, a New Delhi-based cryptocurrency exchange. The firm accused one of its employees in FIR and assured investors of returns.

In another incident, nine police officers in Gujarat reportedly kidnapped a businessman in April, demanding payment in digital currency.

And now, in the latest such case, two men were arrested on August 1 for allegedly duping as many as 1,800 people of Rs 30 crore by forming a fake crypto-currency company in UP’s Ghaziabad. The accused later confessed that they had formed a fake US-based crypto-currency company, Ripple Future, which promised depositors to triple their deposits in 250 days.

Hacking has been one of the most common tools in crypto scams. An investor in New Delhi informed the authorities about a scam in which she lost bitcoin worth Rs 6.5 lakh to hacking. Further, she lost another Rs 35 lakh to those who assured her of retrieving the earlier amount.

According to an ET report, Zebpay, a bitcoin exchange, witnessed an increase in its users in 2017, from 1,50,000 to 4,00,000.

A vital reason for the series of scams could be the delay in regulating cryptocurrencies, according to industry insiders and experts. People who have been trading cryptocurrencies would probably continue to do so if it remained legal, regardless of the banking ban, Shubham Yadav, co-founder and head of business at Coindelta was quoted as saying by Reuters.

The government has so far taken a tough stance against the use of virtual currencies for fear of their use to finance illegal activities. The then finance minister Arun Jaitey said in February that they should be banned as a payment system.

The government’s fears are not entirely unfounded. India’s better internet infrastructure and IT skills could encourage terrorist groups to use bitcoins as a mode of transaction. A PIL in Supreme Court had alleged that the virtual currency was being used for terror funding and money laundering; the court has sought information from the central government and RBI on transactions.

There is enough evidence to establish that cryptocurrencies have been used to hide black money. During demonetisation, crypto trading spiked sharply.

Cyber law expert Puneet Bhasin Dadia believes a regulatory framework by the government would help curb these scams as cryptocurrencies have become a mechanism to carry out most illegal activities.

"Control over the trading is extremely important as most illegal activities take place through digital currencies. The government's initiative of banning cryptocurrencies should be applauded as the conservative approach has already helped curb blackmoney to an extent," she said.

"The government did not ban the currency initially and took its own time to see if the trading could exists, however, it realised that it was not worth the approval ... after India's conservative approach, other nations that legalised the digital currencies are also rethinking on their decisions," she further added.

The government is expected to lay down regulations on cryptocurrencies soon.

A panel with members from the RBI, finance ministry and market regulator Securities and Exchange Board of India is expected to soon formulate a recommendation on what to do next, according to a Reuters report.

In an interview to ET Now, economic affairs secretary Shubhash Chandra Garg had claimed that the government was almost ready with a regulatory framework for the use and trade of cryptocurrency in India. “We are fairly close to developing a template (for the use of cryptocurrencies) that might be in the best interests of our country. We have moved pretty far in this regard, and we have prepared a draft that entails what parts of the businesses should be banned and what should be preserved,” he said.

But any delay means the scams would continue unfettered. People have found means other than banks to ply their crypto trade.

Since the RBI ban, cryptocurrency exchanges like Wazirx and Koinex announced the launch of P2P (peer to peer) service as a banking alternative, allowing traders to buy and sell crypto legally.

Wazirx had more than 100,000 users as of June end and is the “fastest” crypto exchange in India in terms of listing of coins.

The basic idea of cryptocurrency investment is that one allocates a disposable income on it. Most Indians into the business have already earned their principle investments and have been playing with their profits into the bitcoin world. Some of them still hope that India regulates the cryptocurrency business and don’t mind even if it is heavily taxed.