Finance ministry drafting rules for Bitcoin, other virtual currencies

Cases of misuse of virtual currencies are rising as fast as their prices are

The Union finance ministry is in the process of preparing norms for cryptocurrencies or virtual currencies, such as Bitcoin.

The move has been impelled by the latter’s rising market size and investor base, apart from reports of related fraud. Ministry officials said comments would be invited from the public on the proposed rules. “The government feels the industry needs some government oversight and can’t be left unregulated. A panel of bureaucrats will soon submit their recommendations on the subject,” said an official. 

The panel is unlikely to recommend a ban on digital currencies. The global market capitalisation for virtual currencies is about $40 billion. Bitcoin trades at around $1,600 and is volatile. Another such currency, the Etherium, reached $100 a unit from $4 only 10 months before. The price of Litcoin is also rising.  In India, Bitcoin is traded around Rs 1 lakh a unit.

Sandeep Goenka, operations head and co-founder of Indian Bitcoin exchange company Zebpay, said: “Regulation will have a huge positive impact on this industry. We have recently seen that as soon as Japan legalised Bitcoin, it became the number-one country in the industry. However, Indian exchanges are already self-regulated. Nishith Desai (a leading lawyer) is helping the industry foundation, Digital Asset and Blockchain Foundation of India (Dabfi), to get started. Once that is complete, Dabfi will keep reviewing self-regulation processes of its members.” 

The segment says it is fine if the regulations are finalised after hearing them. Zebpay is planning to support more digital assets in the near future. The prices of all these assets, including Bitcoin, are rising and touching new highs every few months, it appears.

The issue of regulating virtual currencies like Bitcoin and others is gaining seriousness as some frauds have come to light in recent past in India also.

On Friday, information technology giant Wipro got an anonymous e-mail demanding Rs 500 crore worth of currency in Bitcoin by May 25, failing which its employees could be attacked. About a million investors are trading in Bitcoin India, mainly through five-odd exchanges. And, 10 days earlier, the police in Mumbai arrested 18 individuals associated with OneCoin, a fraudulent scheme which began eight months earlier and had collected nearly $90,000 from 72 investors, promising huge return from Bitcoin. All this underlines the need for formal recognition and regulation.

Indian Bitcoin prices are trading at premiums of five to 40 per cent compared to those abroad. Soon after demonitesation was announced, many Indians rushed to buy these and reportedly paid up to 40 per cent in premiums. Premiums are marginal now.