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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.

Bitcoin Businesses in India Petition to Make Bitcoin Legal, Can India Become the Next China?

Posted on April 4, 2017 | by [email protected]

India is a country with a good amount of smartphone and technology penetration. Traditionally, India has been the back office for most of the multinational companies owing to its time zone advantage, cheap and skilled labor and diligent technical skills. With the recent outburst of cheap and affordable smartphones in India, there has been a good amount of smartphone penetration leading most of the upcoming Indian e-commerce startups to go completely app-based rather than investing much on the traditional website. India is potentially one of the countries where with a good amount of adoption, Bitcoin volumes can inflate exponentially. However, the Reserve Bank of India has had a neutral standpoint towards the digital currencies. RBI has stated that they are not regulating Bitcoin or other cryptocurrencies yet and would like to observe and understand the technology better before adoption. However, Bitcoin businesses in India have filed a petition to make Bitcoin legal. Let’s dive into the details of the petition and the impending effects.

Bitcoin booms in India

While Bitcoin transactions in India initially were considerably low, Bitcoin mining activity has been very high since 2012. GB Miners group have 9% hashing power of the Bitcoin network, paralleling their western counterparst, making them the largest Bitcoin mining group in the country. With the Indian Government’s demonetization move, the country was forced to go cashless and this saw a rise in Bitcoin transactions and Bitcoin prices. The demonetization ended at the start of 2017, but the effects are still persistent with lower cash withdrawals being observed at banks and ATMs. This has built the required momentum for Bitcoin adoption in India.

The petition

The petition comes at a time when Bitcoin is making regional headlines due to statements from policymakers and politicians who have raised concerns about the lack of regulation surrounding the bitcoin industry. As the government is sticking to the hands off approach, big players in the Indian bitcoin industry who welcome regulation have banded together to launch a self-regulatory body to ensure adherence to KYC and AML norms called The Digital Asset and Blockchain Foundation of India (DABFI). DABFI has launched a petition calling for the explicit legality of bitcoin and other cryptocurrencies in the country. Their main motive is to develop an amicable environment for the development of Bitcoin and other cryptocurrencies.

What can India do to Bitcoin?

India is the second most populated country in the world relying heavily on micropayments. This is especially true for the small scale and medium industries that play a vital role in the country’s economy. With sustained adoption, Indian Bitcoin adoption can be a game changer for the cryptocurrency. Unlike China where the Bitcoin is only now a speculative vehicle, India can do justice to the true stature of Bitcoin and nurture the currencies through large scale adoption and eventually using its massively brilliant technical force for Bitcoin engineering. The verdict for Bitcoin’s legality in India might be set sometime in April. How the Indian government’s judgment would impact Bitcoin is to be seen.

Bitcoin Transaction fee hits an all-time high, adoption pushing the prices higher

Posted on February 22, 2017 | by [email protected]

Bitcoin transactions have been experiencing an uptick thanks to widespread adoption across the globe. What started off as a pet peer to peer payments project has now become an alternative to the existing financial system. Tried, tested and facilitated by individuals who believe that the disruptive nature of the currency will find major applications, Bitcoin has indeed come a long way. What makes the cryptocurrency so lethal is its ability to provide near zero cost transactions and without the interference of a third party for confirming. Added to this, the network also ensures a degree of anonymity and consensual security that makes it more preferable. Eight years have passed from the inception of the cryptocurrency and something interesting is happening in the start of 2017. Let’s delve deeper into the details:

The transactional boom:

Gradually Bitcoin experienced a steady increase in adoption in 2016. With most of the countries advocating digitalization of transactions to promote a cashless society, things have looked good for Bitcoin. With the kind of attention Bitcoin has garnered, the positives of the currency have been highlighted and has caught the public attention. It was just a matter of time before the currency went from just a speculative asset to an alternative investment means. Finding mainstream adoption, the currency has experienced a boom in its transaction owing to heavy merchant adoption.

Increasing Vendor acceptance:

As referenced already, the merchant and vendor adoption has been increasing steadily. Coinmap shows that currently there are around 9000 recognized vendors accepting Bitcoin worldwide as compared to 4000 in 2015. The online merchant acceptance has also increased drastically with Japan itself having around 20,000 online merchants that accept Bitcoin in payments. The abolition of 8% sales tax and favorable legislation encouraged the transfer of this asset seamlessly. Same has been the case with rest of the Asian countries where the legislation has helped the innovation.

The all-time high transaction fee:

The Bitcoin transaction fees are at an all-time high, up by 1289% since March 2015. The Bitcoin transactional volume has gone up by 173% over 2015, equaling 3 transactions per second. The increase in the volumes can be reflected through local bitcoins. Localbitcoins has shown that countries where the inflation is high[Nigeria and Venezuela] are significantly adopting to Bitcoin transactions. With steady increase in value and application, Bitcoin would surely become the prime means of exchange in good time.

Bitcoin crashes as China acts up on regulations

Posted on January 11, 2017 | by [email protected]

What has been in the air surrounding Bitcoin and China from the start of the New Year has indeed been confirmed on 11^th of January. Rumors about China moving forward with regulation and capital controls on Bitcoin are proven to be true. While the volume from Chinese exchanges remained fairly constant or increased, the price of Bitcoin took a hit. These regulations will need a good 2-3 years for formulation and taking complete effect. But the news came as a shock to the market and has seen the market reacting very adversely. The price has dropped to around $750 with little support. Let’s diagnose the crash and what we can expect further from here:

When did this start?

Chinese economy is a credit fueled economy and they have observed that the currency generated has been steadily finding its way out of the country. With patterns where Bitcoin prices increase with Yuan devaluation, they have figured out that Bitcoin was the medium. To confirm the same the authorities have closely monitored the digital currency with thoughts of regulating it. China as such has strong capital controls and conversion of local currency into foreign currency is well regulated. However Bitcoin having a peer to peer nature doesn’t get accounted in these regulations. Hence Chinese authorities have decided to employ strict capital controls over Bitcoin. These measures require identification and completion of detailed forms to convert yuan into Bitcoin or invest in Bitcoin.

How is PBOC regulating?

China’s financial regulators are reportedly seeking opinions on how to regulate the trading of bitcoin and have contacted the exchanges on the same. One of the proposed methods may include setting up a depository platform. Chinese exchange BTCC – one of three leading bitcoin trading platforms spoke to by the People’s Bank of China last Friday. They have explicitly stated that they adhere to “strict AML/KYC policies and it’s not possible to evade the capital controls through their channel”. With Peoples Bank of China probing deeply into matters, we can expect strict regulations to be implemented very soon.

Diagnosis and predictions:

Bitcoin has been trading at peak prices after a sustained bull run last year. During this time, many investors moved their funds into the digital currency for long term holding. With the fears triggering a complete crash, most of the investors decided to exit the market furthering the price drop. With the price now lingering around $760, we can see one of the following two things happening.

Bullish side:

If the price consolidates and moves up with momentum and breaks the all the time high, then Bitcoin can head straight to $2000 levels within the next couple of months.

Bearish side:

On the Bearish side, $560-$600 range is a heavy support zone that held the prices on multiple occasions. Once market breaches these levels, a strong crash taking Bitcoin to $250 can be expected.

How the market would choose to react now and what side Bitcoin decides to rally again, only time will tell.

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.

Brazil in Deep Trouble: Bitcoin and Blockchain are what Brazil needs right now?

Posted on October 12, 2016 | by [email protected]

Recession stricken Brazil is the world’s seventh largest economy with a population of 207.8 million and GDP of US$1.775 trillion. Brazil’s worst recession in recent history continued as rising unemployment and deepening political turmoil dragged the economy into further decline. In the second quarter, Brazil’s economy contracted 3.8%, after shrinking 5.4% in the first three months of the year. It’s the longest recession since the 1930s for Brazil, Latin America’s largest economy.

The situation went from bad to worse as the President Dilma Rousseff was impeached owing to large scale corruption. While the proceedings in Brazil are currently bleak, let’s look into the possibility of Bitcoin adoption setting things right:

Bitcoin adoption currently:

The Bitcoin adoption in Brazil has been on the rise owing to the varying economic conditions. The recession cycle followed the pattern where Brazilian Real appreciated first and then went on to depreciate starting a probable hyperinflationary cycle. During the course of this pattern, there has been a significant uptick in the Bitcoin trading volume from Brazil. The dynamics of the economy and exports prompted people to look for alternatives, which turned out to be Bitcoin.

Brazil is the largest exporter of soft commodities in the world. During the deflationary part of the cycle, the Brazilian Real appreciated due to significant capital inflows. For major exporters, this was a setback as they wouldn’t be getting more local currency in exchange for their goods. Hence an alternative, they turned to receive payment in Bitcoin to be later converted into local currency when Real depreciated.

How Bitcoin can be a solution:

For an economy that is struggling, people’s faith in its currency fading, an alternative system has to be opted. Just like Government bonds where the Government backs fiat currencies, the central bank can alternatively back Bitcoin based assets. What makes this even more feasible is the transparency the underlying technology provides in such arrangements.

This decentralized system can be in place till the economy achieves stability. Later the asset holders can cash in for local currency. These assets unlike bonds can be transacted peer to peer without any processing fee.

How Blockchain adoption would be a relief:

The settlement time in Brazilian market is abnormally slow. The average settlement period for credit card transactions in Brazil is D + 28 which is very slow compared to western markets. Slow settlement times amount to loss of value of transactions due to holding up of the money. This would mean the loss of investment opportunities in time. A study by PWC revealed that Brazil has over 22 million [small and medium-sized enterprises] and micro-businesses. The mobile penetration is upwards of 132%, which has created a fertile ground for mobile payments.

Hence Blockchain based settlements which are quicker and more transparent are exactly what Brazil is looking for. Fortunately there has been significant development on this end with major banks and Mastercard trying to implement Blockchain based transactions in Brazil.