The Enforcement Directorate's investigation into money laundering by WazirX and the subsequent squabbling among its promoters has revealed the 'darker side' of cryptocurrencies, a top government source said on Thursday.
The source said that people should exercise caution in the absence of a regulation to regulate cryptocurrencies and so-called exchanges trading in them.
The word caution should be used in the minds of people dealing with cryptocurrencies. The source said caution is necessary in the case of WazirX, because people got to know many darker sides.
The Enforcement Directorate ED has been investigating money laundering allegations against WazirX.
The agency has frozen 66.67 crore worth of bank deposits as part of an ongoing money laundering probe against some fraud phone-based loan apps backed by Chinese funds.
Within a few days of the ED action, a public spat broke out between Binance CEO Changpeng Zhao and WazirX co-founder Nischal Shetty.
The Indian entity said that it was investigating legal action against Binance and the CEO of the WazirX exchange distanced himself from the operations at the WazirX exchange.
A show-cause notice was issued by the Minister of State for Finance Pankaj Chaudhary in Parliament, under the provisions of the Foreign Exchange Management Act FEMA against WazirX for allowing outward remittance of assets worth Rs 2,790 crore to unknown wallets.
In another case, he said that WazirX allowed foreign users to use transfers from third-party exchanges, namely FTX, Binance, etc., to convert one coin into another on its own platform.
The ED is investigating the case, and the WazirX episode has brought to fore a lot of issues, according to government sources.
India does not recognize cryptocurrencies, but levies a 30 per cent tax on income earned from such virtual assets.
Finance Minister Nirmala Sitharaman has been making a case for global regulation of cryptocurrencies to tackle the risks of money laundering and terror funding.
She suggested that G 20 should look at the feasibility of bringing non-financial assets likecryptocurrencies into the ambit of automatic exchange of information among nations to check tax evasion at the Ministerial Symposium on Tax and Development in Bali.