Government Archives

Indian Government forms committee to examine framework for Bitcoin: Bitcoin most likely to be made legal

Posted on April 15, 2017 | by [email protected]

India has never legally banned Bitcoin or other cryptocurrencies but traditionally employed a hands off approach towards them. They have always maintained that they are not currently versed with the technology required to monitor digital currencies and would take sufficient time before formulating a framework that enables them to do so. With increasing Bitcoin volumes on Indian exchanges and circulating petitions to legalize Bitcoin, the Indian Government has now been put in a position where inventing a framework to regulate Bitcoin has now become a necessity. Let’s look into how Indian Government is planning to formulate the framework:

The perfect set-up:

In November 2016, when the Prime Minister of India banned higher denomination currency notes and took a good couple of months before bringing new denomination into circulation. During this period, the government’s initiative has been to motivate the populous into shifting more towards digital payments. Digital payments application companies that enable micropayments like Paytm and Freecharge have enabled this transition and helped for more centralized regulation of transactions. However, a byproduct of this move was the rise of Bitcoin transactions within and in and out of the country. The BTCINR trading prices were over 20% than the premium depicting the boost the cryptocurrency received during this period. This has laid down the foundation for consistent adoption of Bitcoin in India and forced the government into finding ways to regulate it.

The proposed committee:

The Inter-disciplinary committee established by the Indian Government includes the Central Bank, prominent members from the ministry of Finance and other prominent financial bodies to delve into the framework requirements of Bitcoin regulation. Earlier in February, India’s Bitcoin ecosystem consisting of young companies and Bitcoin businesses established a private self-regulatory body to proactively prevent illegal use of the cryptocurrency. The formed government committee would produce a report on Bitcoin basing on the underlying technology, its usage in India and regulations across the world. If India goes down the path of legalizing Bitcoin, it would be a valuable addition to the Bitcoin adoption space. The Asian Bitcoin ecosystem is already enriched with Japan and Philippines embracing the cryptocurrency and giving it a legal status. With Russia and India looking forward to regulate the cryptocurrency, things seem very positive for the cryptocurrency.

Task order for the committee:

The announcement from the Indian Government had the following excerpt:

“The circulation of Virtual Currencies which are also known as Digital/Crypto Currencies has been a cause of concern….Reserve Bank of India [the country’s central bank] had also cautioned the users, holders and traders of Virtual currencies (VCs) including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.”

The task order laid out for the committee in the next three months are as follows:

Checking on the present status of Virtual Currencies both in India and globally
Examining the existing global regulatory and legal rules of compliance governing Virtual Currencies
Suggest measures for dealing with such Virtual Currencies in areas such as consumer protection, money laundering, etc; and
Examine any other matter related to Virtual Currencies which may be relevant.

Is the world slowly turning towards a #bitcoin oriented economy?

Posted on November 21, 2016 | by [email protected]

When one sees that the applications of a technology are multifold, with time it would impact the legacy systems. When it comes to cryptocurrencies, the legacy system is the existing financial setup. That being said, the important question here is how are cryptocurrencies impacting it? Well, the existing financial system has many loopholes which might be dangerous if not properly monitored. Anyone who witnessed or experienced the brunt of the 2008 housing collapse would understand this really well. Too much control over the purchasing power of money and its manipulation can be hazardous. Even the Governments and the Central Banks have come to realize this off late. This has led to the experimentation of State owned cryptocurrencies that are decentralized and open. Let’s look into how countries are experimenting with them in their nascent stages:

Russia hates Bitcoin but wants to have its own cryptocurrency:

After China, Russia became the second country to ban Bitcoin. But as hypocritical it might sound, Russia is considering the possibility of introducing a national regulated cryptocurrency. The Russian Federal Financial Monitoring Service (Rosfinmonitoring) revealed this according to the Kommersant newspaper. The idea of introducing a cryptocurrency is being discussed with representatives of banks and at meetings in the Finance Ministry. Though it would be a cryptocurrency, Russians are planning to make it a bit centralized as against bitcoin. A Russian regulated cryptocurrency should not be a non-emission currency but it will have its issuer with rights and responsibilities. This issuer can be “financial organizations that will be entrusted with the emission of cryptocurrencies.” This activity is most likely to be subject to licensing, Rosfinmonitoring said.

South Korea’s progressive take:

South Korea can be credited as the most progressive nation when it comes to cryptocurrencies for the variety of applications they provide. From a wide range of vendors accepting Bitcoin to the launch of the first Bitcoin based ETF in the world, Korea has always been ahead.

Recently,the chairman of South Korea’s Financial Services Commission (FSC), Yim Jong-yong came out with an interesting announcement. He said that his department will “Lay the systemic groundwork for the spread of digital currency.” The FSC is the South Korean government office overseeing financial services. In 2008, the department assumed authority over all financial policies regarding the financial market. No details were given about the form or technology that the FSC’s digital currency will use. Basing on the local experimentation, it is believed that they would be using a new cryptocurrency based on Blockchain Technology.

World’s oldest Central Bank is in the race too:

Sweden’s central bank is reportedly considering the issuance of its own digital currency, ekrona. This is primarily to address the significant decline of the use of cash in the country. First revealed in a Financial Times report, Sweden’s Riksbank could introduce and issue its own digital currency before the turn of the decade. Sweden has seen a rapid decline of the use of physical cash – both coins and notes – in recent times. It is estimated that the Circulation has dropped by 40% since 2009, leaving Riksbank little choice. A large number of Swedes have abandoned cash for cards and other forms of digital payments turning it into a cash-free society.

The Chinese look to impose capital controls over Bitcoin, a hiccup to the Bull Run?

Posted on November 4, 2016 | by [email protected]

When it comes to countries and cryptocurrencies, China and Bitcoin share a relationship similar to estranged lovers. China has a credit fueled economy; Bitcoin had a period of stagnated growth. Chinese used Bitcoins to escape the debt trap and this in turn boosted the growth of the cryptocurrency. The price of Bitcoin almost tripled (from $220 to $730) in a year thanks to the Yuan devaluation. While this is convenient to the proponents supporting the currency, the Chinese government sees this as a threat to the economy.

The Hostility:

China has dominated Bitcoin mining and trading domains for some time now. The widespread use of the digital currency has led the Government to initiate regulations to monitor Bitcoin. In 2013, the government classified Bitcoin as a commodity threatening its status as currency. This placed Bitcoin outside the purview of the foreign exchange regulator. People’s Bank of China and financial regulators made it a point to specify that bitcoin functioned as digital commodity only. Owing to the success of the cryptocurrency, the government itself was looking into possibility of its own national digital currency. In 2013, finally China moved to ban Bitcoin barring all financial institutions from handling Bitcoin transactions.

Capital Control:

Capital control represents any measure taken by a government, central bank or other regulatory body to limit the flow of foreign capital in and out of the domestic economy. These controls include taxes, tariffs, outright legislation and volume restrictions, as well as market-based forces. Capital controls can affect many asset classes such as equities, bonds and foreign exchange trades. As mentioned earlier, China has a credit fueled growth, which implies that it is important that they ensure the value of money is intact. This can only be assured by implementing Capital Control over certain assets.

Government to make the move soon:

According to Bloomberg, Chinese regulators are looking into measures for limiting Bitcoin transactions taking the funds out of the country. The policies include restricting domestic bitcoin exchanges from moving the cryptocurrency to platforms outside the nation. Also would be in place quotas for the amount of bitcoins that can be sent abroad.

The measures were triggered when investors bought bitcoin on local exchanges and sold them offshore evading taxes. Whenever the Yuan depreciated, there was heavy inflow of funds into Bitcoin as means of hedging. With U.S. interest rate hike around the corner, policy makers are trying to restrict the outflow of funds with Yuan weakening. When the measures will be implemented, growth of Bitcoin will surely face little discomfort.

4 Federal Agencies with Bitcoin Jurisdiction

Posted on September 5, 2016 | by [email protected]

As a new monetary system with a widening base of users, Bitcoin is highly susceptible to government regulation. Government agencies enact and execute the policies of the federal government. These agencies seek to protect the citizens of the United States from fraud, crime, and duplicity. Consequentially, their intervention can disrupt or alter the existing structures of Bitcoin. Investors in Bitcoin should be aware of the policies and expectations of these agencies, in order to understand the value of Bitcoin and comply with current laws. This article examines the mission statements, developments, and policies of four U.S. government agencies with varying degrees of jurisdiction over Bitcoin.

U.S. Commodity Futures Trading Commission (CFTC)

“The mission of the Commodity Futures Trading Commission (CFTC) is to foster open, transparent, competitive, and financially sound markets, to avoid systemic risk, and to protect the market users and their funds, consumers, and the public from fraud, manipulation, and abusive practices related to derivatives and other products that are subject to the Commodity Exchange Act.” –CFTC.gov

The CFTC actively monitors and responds to market failures. In response to the failure of Bitcoin exchange Bitfinex, the CFTC filed and settled charges in June 2016 for failure to register as a commission merchant as mandated in the commodity exchange act and for offering illegal transactions. Given that Bitfinex is a Hong Kong based exchange, this story signals the wide reach of cryptocurrency regulations and the importance of building international regulatory awareness.

U.S. Securities and Exchange Commission (SEC)

“The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” –SEC.gov

The SEC also exists to protect markets, with a greater focus on investor protection than the CFTC. In another piece of recent news, the SEC charged Connecticut-based companies GAW miners and ZenMiners for fraudulent mining activity. The companies were selling shares of their Bitcoin profits, supplied by their Bitcoin mining activities. However, they sold more shares of computing power than they had and were unable to meet their promises to investors. Consequentially, the SEC intervened. This instance demonstrates that Bitcoin investors and business owners alike need to be wary of new business models.

Internal Revenue Service (IRS)

[The IRS mission is to] “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” –IRS.gov

Currently, the IRS treats virtual currency as property for federal tax purposes. More information and FAQs can be found on the IRS website. Investors should consult the IRS website in order to abide by the laws associated with the developing status of Bitcoin.

Financial Crimes Enforcement Network (FinCEN)

“FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.” –FinCEN.gov

In addition to its services, FinCEN provides a comprehensive list of anti-money laundering laws. In considering transactions, investors and businesses should consult the FinCEN anti-laundering website to help avoid illegal activities.

Tag: Government