There is very little awareness among people on these currencies, which makes them vulnerable to frauds, say experts
The first cryptocurrency or virtual currency – bitcoin – may have been born nine years back in 2009 but this form of currency seems to have come into its own only this year.
The march of digital currencies from the realm of shady or illegal to a more credible space is being led by bitcoin, which constitutes more than 50% of the total value of cryptocurrencies in the market.
Somewhere towards the end of this year, there seems to have emerged better acceptance or hunger for these kinds of currencies with bitcoin prices surging over 1,700% from around $1,000 in January to over $17,000 now and the Cboe and the CME starting trading in its futures.
All this will be capped with NYSE looking to list bitcoin ETFs, for which it has filed with the Securities and Exchange Commission (SEC) on Thursday.
As bitcoin hogs the spotlight as an asset class among investors and traders, other cryptocurrencies like ethereum, bitcoin cash, ripple, dash, litecoin and others are also basking in the new-found acceptance.
Not to be left behind, the largely informal Indian cryptocurrency market has also been gyrating, mirroring the movement abroad. And surely enough, it has managed to become a part of the global mania playing out in the cryptocurrency market.
Though, most Indian players in this space are operating in the grey market with no formal rules or regulation in place. The ministry of finance, Securities and Exchanges Board of India (Sebi) and Reserve Bank of India (RBI) are still groping in the dark as to how to treat these currencies.
But with every passing day and major overseas developments, it is becoming difficult for them to ignore the pressing need to come out with the regulatory framework for cryptocurrency exchanges and traders.
The clamour for putting in place proper regulations and guidelines to formalise cryptocurrencies and for the protection of traders is also getting louder.
Last week, the income tax (I-T) department probed cryptocurrency exchanges to understand the kinds of trades being carried out, who were the people trading in them, the volume and value of trades and other such things.
After the meteoric rise in Bitcoin prices, there's been a rush to trade in these currencies despite them not being accepted as legal tender in the country.
Akshay Ananth, CEO of Easter Egg Pte Ltd, who operates a block-chain-enabled gifting platform and is in the process of launching his own token by the middle of next year, says the government has to act fast and come out with a regulation if it has to control the unfettered growth of virtual currencies.
"I don't think India has got that much time. They (government) have to take quicker calls because of the rate at which people are taking to it. It is growing by 10% every day. It is something that they cannot ban but if they want to control the way this thing is used, they have to come out with a regulation," he said.
Unofficial market data estimate that the size of the virtual currency market grew from $25 billion in January to $350 billion, and is likely to hit $1 trillion by December next year.
According to Ananth, what needs to be done is exchanges could be asked to follow certain protocols and rules. He also said collating customer details could be made mandatory, a limit could be set on number of coins that could be bought or sold in a day and other such norms could be specified.
"There are ways and means of doing it. It is being done in various other countries and we need to follow them," he said.
Shivam Thakral, co-founder and CEO of BuyUCoin, a portal that allows trading in 30 virtual currencies, said that in the absence of regulations, most exchanges were currently self-regulating themselves by doing a proper e-know-your-customer (KYC) of their users.
He, however, said there were still a lot of uncertainties regarding the cryptocurrency trade in India.
"Tomorrow, if the government decides to make trading in them (cryptocurrencies) illegal, then their prices will crash. No one will be willing to buy them and people will lose money. The government should regulate the exchanges so that investors and traders are protected from fraudulent players, who are selling bitcoins without even having them. There is very little awareness among people on these currencies and this makes them vulnerable to frauds," said Thakral.
He said that 98 out of 100 products in the market were scams.
Miles Au Yeung, president – markets – eCurrency, a global consultancy firm that is advising many central banks and governments on digital fiat currency, said problem with cryptocurrencies arises when they are viewed as "real currencies".
"People think of cryptocurrency the way they think of real currency. This could be problematic. The concern comes from how people are looking at it or thinking about cryptocurrencies as if they were real currencies. Therefore, in some countries, the government and the securities regulator are defining these things (cryptocurrencies) as commodity," he said.
Yeung feels cryptocurrencies have gained acceptance or "have space for existence" because our life was moving towards digitisation. He believes a digital fiat currency would automatically take care of many of the dangers currently inherent in cryptocurrencies. His firm has made presentation on digital fiat currency to 30 countries, including India.
"All the countries we talk to realise that this is the time (for coming out with digital fiat currency). For the developing countries, they see it as a way to more efficient way to enable financial inclusion. For the developed world, they also see it as a way improve the efficiency of payments and provide an alternative. In India, we have presented to the finance minister, Economic Advisory Council, Watal Committee, the chief ministers' committee and the RBI, of course," said Yeung.
The government would have to pass a Bill in the Parliament to issue a digital fiat currency.
According to him, central banks like Bank of Canada, Bank of England, Riksbank (Sweden) and others are seriously considering coming out with a digital fiat currency and have begun testing it on different technologies.
Even after the government comes out with digital fiat currency, cryptocurrencies would co-exist as trading and investment instrument. Thakral said digital fiat currency will help in giving cryptocurrencies more credence. "If the government comes out with digital fiat currency, then cryptocurrency will be exchanged with that digital fiat currency instead of physical fiat currency today. It will benefit the investors".
Ananth, however, believes that a regulation or a digital fiat currency in India were still some time away. "They (Indian government) are waiting for other governments like Singapore, UK or any others to create a regulation. Once they (other governments) do that they (Indian government) will evaluate that and then they will use the same sort of regulation for India, but customise it".
SOARING VALUE
- There is very little awareness among people on these currencies, which makes them vulnerable to frauds, say experts, claiming that 98 out of 100 products in the Indian market were scams
- Central banks like Bank of Canada, Bank of England, Riksbank (Sweden) and others are seriously considering coming out with a digital fiat currency and have begun testing it on different technologies
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