In generic terms, a currency means anything that can be used as a circulating medium and is usually accepted in trade circles as a representative of value of property.
In the FEMA Act, 1999, the term “Currency” has also been defined inclusively, which includes money orders, cheques, drafts, currency notes, postal notes, postal orders, travellers cheques, bills of exchange and promissory notes, credit cards, letters of credit or such other similar instruments, as may be notified by the RBI.
Since a lot of entities accept Bitcoins as a payment mode, it appears that Bitcoin is a currency. However, according to certain legal bodies in India, since it has not been termed as currency in FEMA Act or as legal tender by the RBI, it may not qualify as currency.
Until RBI clears its stand on the acceptance of Bitcoin as a currency,it would be a matter of dispute and arguments whether a Bitcoin would be classified as currency or not. If RBI announces that Bitcoin is accepted as a currency, any trading in it would be subject to FEMA Regulations.
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