Bitcoin, other crytocurrencies or virtual currencies should not be promoted, the government-appointed panel for looking into the legality of bitcoin has opined.
The panel, however, may not recommend a blanket ban on digital currencies as it would be difficult to implement. Sources have said that the Ministry of Corporate Affairs, which is looking into the issue, is not in favour of keeping the cryptocurrency industry unregulated. In fact, recently, Minister of Corporate Affairs Veerappa Moily had said that the "industry needs government oversight and, therefore, regulations will be prepared". However, the industry wants its views to be heard before finalising any regulations.
Experts told Business standard that regulations by the government should be good for this industry, which is in its nascent stage currently. They added that regulations would help keep unscrupulous people at bay.
Experts told Business standard that regulations by the government should be good for this industry, which is in its nascent stage currently. They added that regulations would help keep unscrupulous people at bay.
At present, globally, bitcoin is traded at around $1600 and is highly volatile. Other such currencies, like Ethereum, reached the $100 mark per unit in the past 10 months and Litecoin's prices are also rising. Globally, the market cap for virtual currencies has reached $30 billion. In India, bitcoin is traded at around Rs 1 lakh per unit.
The CEO of one of the bitcoin exchanges in India said, "We have already started working on self regulations for cryptocurrencies and if the government comes out with simpler regulations, that will help the industry to grow in a healthy way and supplement our efforts of self regulations.”
The focus on regulating virtual currencies comes even as IT giant Wipro, on Friday, received an anonymous email demanding Rs 500 crore in bitcoins as ransom by May 25, failing which its employees could be attacked using a highly toxic substance called ricin. On the other hand, about a million investors are trading in bitcoins in India, mainly through 4-5 leading exchanges.
Ten days ago, Mumbai police arrested 18 individuals associated with the fraudulent scheme OneCoin which began operating 8 months ago and had collected nearly $90,000 over that period from 72 investors, promising huge returns from bitcoins. Globally, in countries like Nigeria, bitcoin premiums are the highest as it is used for illegal purposes also, said experts who tracks the currency.
In the past, remittances were sent through the havala market where senders used to get good premium and receivers used to get money in cash. However, apart from evading taxes, this route was also used for illegal payments — from financing smuggling to terrorism.
Now, remittances from overseas are also coming through bitcoins. Bitcoins can be transferred officially using the platforms of some leading exchanges which have tied up with specialised agencies in currency transfers. However, so far the trade has been private and can be done peer to peer, unless bought and sold on exchanges in India.
Indian exchanges conduct know your customer (KYC) exercises for anyone who is registered with them, and they recently renewed all KYC.
However concerns persist. As a global expert on forensic practices from one of the top four global accounting firms explained, “Terrorism is an organised financial crime now. Unique methods are used regarding using virtual currencies to finance it.” He explained that such currencies are paid and then used to buy products from several trade and online platforms which are then sold for cash. This is how cash is generated, which subsequently goes to the ultimate beneficiaries and cannot be traced.
Indian bitcoin prices were trading at 10-40 per cent premiums compared to overseas prices. Soon after demonetisation was announced, Indians scrambled to buy bitcoins and paid up to 40 per cent premiums. These trades occurred through Indian exchanges. However, exchanges accept only money transfer through NEFT banking channels and hence such transactions can be traced.