Cryptocurrency trade is still in its early days in India, and the Reserve Bank of India (RBI) has yet to develop a clear regulatory framework. This makes trading in cryptocurrency a bit of a risk in India.
In May, major Indian cryptocurrency platforms CoinDCX, Coinswitch Kuber, and Wazir X canceled the TerraUST and Luna stable coins after the demise of the Terra Network. As a result, thousands of Indian investors lost their assets in one of the most spectacular digital asset failures in recent years.
The RBI has also been clear in its stance on cryptocurrency. In April, the central bank said it would not recognize cryptocurrency as legal tender and warned of the risks associated with trading in virtual currencies.
Here are five reasons why you should not trade cryptocurrency in India:
1. There is no regulatory framework for cryptocurrency in India
In India, cryptocurrency is not regulated. It makes the product even more volatile, already a high-risk item.
On the other hand, consumers are deluged with full-page advertisements and glitzy campaigns featuring their favorite celebrities, encouraging them to invest. Their have got Tanmay Bhatt on YouTube, Nikhil Chinapa on Instagram, and Kunaal Roy Kapur on TV screen. For example, a plethora of commercials for cryptocurrency was aired during last year’s India-Pakistan cricket match.
The RBI has not yet developed a regulatory framework for cryptocurrency in India. This means there is no official body to oversee and regulate cryptocurrency trading in India.
2. The Indian government is not supportive of cryptocurrency
The Reserve Bank of India has warned numerous times that cryptocurrencies might have “grave consequences” for macroeconomic and financial stability. In contrast, Prime Minister Narendra Modi warned in November that cryptocurrencies could ruin youths.
The government fears that the Cryptocurrency markets are unregulated. That could be used for illegal activities such as money laundering, fraud, or terror financing. The Directorate of Enforcement India’s agency is responsible for preventing financial crime. They also investigate at least eight cases of cryptocurrency-related fraud.
Despite warnings from the government and information regarding the planned legislation yet accessible, many cryptocurrency investors are still hoping they will be able to trade.
The Indian government has been very clear in its stance on cryptocurrency. It has repeatedly said that it does not recognize cryptocurrency as legal tender.
In February, a top official of India’s central bank compared cryptocurrencies to “Ponzi schemes” and proposed an outright ban in its harshest condemnation. At a banking conference, RBI deputy governor Rabi Sankar stated that cryptocurrencies were “particularly created to escape the regulated financial system” and are not supported by any underlying cash flow.
3. There is no clarity on taxes on cryptocurrency in India
According to industry leaders, tax authorities are asking cryptocurrency firms about the many issues they ask about how they will apply “relevant provisions” of the indirect tax system.
Amid regulatory uncertainty, cryptocurrency platform executives coming under increased scrutiny from tax authorities for GST evasion told ET that they are unclear about the “applicable provisions” in the country’s indirect tax regime.
The platform believes that the tax authorities have yet to notify it of the final tax amount and penalty, which it is prepared to pay.
The Indian tax authorities have not yet clarified how to treat gains from trading cryptocurrency. Therefore, knowing how much tax you will need to pay on your profits is difficult.
From July 1, 2022, anyone exchanging money for cryptocurrencies with an Indian resident was required to withhold tax at the rate of 1% on that trade, subject to certain criteria.
Additionally. The payer should ensure that tax has been paid on the transaction in question before disbursing the consideration in cases where the consideration is entirely or partially in-kind. For this reason, India needs clarity on the taxation of cryptocurrency
4. There is a risk of scams
Scammers are constantly seeking new ways to steal your money.
The recent explosive growth of cryptocurrencies has made fraud more common. Being aware of the risks is crucial if you’re interested in cryptocurrencies. Learn more about typical cryptocurrency scams, how to recognize them, and how to prevent them.
One can easily get into many crypto scams due to unregulated cryptocurrency in different nations. However, following crypto rules and regulations can easily avoid these risks.
Given the unregulated nature of cryptocurrency trading in India, there is a risk of scams. Several reports have been of people being duped by fraudulent cryptocurrency exchanges and trading platforms.
As the number of people using and trading cryptocurrency grows, so do the associated risks. These risks go beyond market fluctuations; they include extreme cyber frauds carried out by skilled criminals.
According to Chainalysis, a software platform that tracks the criminal activities linked to cryptocurrency transactions, India’s five most visited scam websites are coinpayu.com, adbtc.top, hackertyper.net, dualmine.com, and coingain.app, among others–received a combined 4.6 million visits from Indian users just last year alone (2021).
5. The market is highly volatile
The prices of cryptocurrencies are highly volatile. This means that the value of your investment can go up or down sharply in a short period. As a result, you could lose all your money if you’re not careful.
Investing in cryptocurrency is risky, and you should only invest what you can afford to lose. If you’re thinking of investing in cryptocurrency, make sure you understand the risks involved before taking the plunge.
The Indian government’s warning, the lack of regulatory clarity, and the risk of scams are reasons you should think twice before investing in cryptocurrency. The market is also highly volatile, so you could lose all your money if you’re not careful.
Are you still interested in investing in cryptocurrency? Make sure you research and understand the risks involved before taking the plunge. Meanwhile, mitigate your risks by trading via the most reliable cryptocurrency platforms.
