International institutional investors have expressed interest in “a regulated alternative that could mitigate some of these concerns,” the central bank added.
Cryptocurrencies have attracted strong interest since they were introduced about a decade ago and daily trading values are said to be in billions of dollars. Bitcoin (BTC) was worth over 50,000 USD after the Bitcoin price surged due to Tesla investing 1.5 billion US dollars in the cryptocurrency. Bitcoins are traded on several independent exchanges worldwide and there may be differences in the prices. The bitcoin price index provides the average price across the leading global exchanges. Cryptocurrency bitcoin is now more valuable than the world’s two biggest payment networks Visa and Mastercard, which have a combined market capitalisation of US$ 871 billion.
According to data, bitcoin’s market cap is currently over US$ 1 Trillion. The digital coin went from zero to US$ 1 Trillion in network value 3.6 times faster than Microsoft. Bitcoin also achieved a higher valuation than the world’s three biggest banks combined, when it hit an all-time high of US$ 61,700 last week, as its market cap approached roughly US$ 1.15 Trillion. The combined market cap of JPMorgan, Bank of America and The Industrial and Commercial Bank of China (ICBC) is only US$ 1.08 Trillion.
The on-chain analytics resource Ecoinometrics said, as cited by Cointelegraph, that as of March 13, bitcoin equaled 45% of the gold held in investment vehicles and 10% of the physical gold market as a whole. To eclipse gold entirely bitcoin would need to trade at US$ 590,000, it added. The day is not far off, when it achieves. Bitcoin was trading at $54,865 per coin as of 13:26 GMT on Tuesday, the day on which this article was written.
The explosive popularity has come despite the risks associated with these virtual currencies, including the fact that they are not backed by any Government or Central Bank and are prone to extreme volatility. The last aspect has spurred demand for leveraged products, or futures, based on the price of the underlying cryptocurrency. For instance, the Chicago Mercantile Exchange (CME) offers a bitcoin futures contract. Besides the CME, the Intercontinental Exchange also offers cryptocurrency futures. However, more mainstream players are getting into the act.
Currently in Singapore, investors can trade cryptocurrencies on various overseas exchanges and through derivatives offered by companies such as IG and Oanda. More cryptocurrency exchanges are seeking the approval of authorities to assuage investor concerns about the risks of trading on unregulated platforms. For example, Tokocrypto, a cryptocurrency exchange, said in a statement recently that it has become the first exchange in Indonesia to be registered as a government – approved platform for the trading of cryptocurrency assets.
Lawrence Loh, an Associate Professor at NUS Business School, said the authorities are paying more attention to cryptocurrencies given their popularity and as large companies like Facebook prepare to launch their own digital currencies – Libra. The regulations may, however, differ from country to country. Government panel calls for ban on cryptocurrencies and wants 10-year-jail for violations is also true.
Bitcoin has gained over 44% in value in nearly 16 months after the Reserve Bank of India (RBI) banned dealing in virtual currencies. On July 5 last year, Bitcoin stood at $6,541.79 which has now risen to $9,450.68, translating into a rise of 44.47% during the period. Bitcoin hit its all-time high of $19,498.63 on December 18, 2017.
July 5 was the deadline fixed by RBI in its April 6 circular last year to put a blanket ban on dealing in cryptocurrency. The RBI had in April said the entities that it regulates shall not deal in virtual currencies, preventing banks from offering services to cryptocurrency exchanges. RBI had given three months to banks to stop offering services to individuals and businesses dealing in virtual currencies.
Dealing in Bitcoin, Ethereum and their brethren may land you in jail in the near future. An inter-ministerial committee headed by Finance Secretary Subhash Chandra Garg has recommended heavy penalties of up to Rs 25 crore (US$ 3.63 million) and a jail term up to 10 years for anyone who mines, generates, holds, sells, transfers or issues cryptocurrency. The panel’s recommendations along with the draft legislation, Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019, was put up on the website of the Department of Economic Affairs last year.
This marks the end of hopes that the Modi 2.0 government would change its long-standing unfavourable stance on virtual currencies [VCs]. The development comes in the wake of the growing hype over social media giant Facebook’s digital currency, Libra, which will reportedly launch in 2020, while Bitcoin, the largest cryptocurrency, has posted a threefold rise in value over the past six months.
Significantly, the panel’s report made a clear distinction between the private cryptocurrencies and an official one issued by the government. In fact, it advised the Modi government to keep an open mind towards the latter. “The concerns of the Committee are therefore narrowly focused on non – official digital currencies and not on the underlying technologies or VCs issued by governments,” the report clarified.
According to the panel, while non-official cryptocurrencies may boast some functional benefits, the market potential of these functionalities is subject to technological and behavioural changes as well as the scope of financial investment that they can raise. “All these factors, make the intrinsic value of cryptocurrencies negligible, and subject to severe shocks or fluctuations,” said the report, adding that the volatility of the cryptocurrency to fiat exchange rates is large relative to even risky equities. Due to such features, cryptocurrencies cannot replace fiat currencies.
Moreover, these “characteristics create consumer protection issues, risks to the financial system and the overall economy, and can facilitate criminal activity”, the report claimed, citing examples to illustrate how cryptocurrencies can be used to defraud consumers, particularly unsophisticated consumers or investors.
The Financial Action Task Force has previously observed that the anonymity associated with cryptocurrencies makes them vulnerable to money laundering and terrorist financing activities while also making law enforcement difficult. “Another concern from use of non-official digital currencies is to the economy and the financial system with implications for monetary supply, particularly given their volatility and crippling use of resources including energy,” the Garg panel further stated in its report. It believes that the existing micro-prudential regulation, macro-prudential regulation and criminal laws are “unable to respond to [the above mentioned] challenges”.
The panel also examined Distributed Ledger Technologies [DLT] as the underlying technology for cryptocurrencies and acknowledge that they boast the potential to improve the efficiency and inclusiveness of the financial system as well as transparency in government services for THE citizens. DLT allows the recording, sharing and transfer of data or value without the need for a central record keeping as in the case of a traditional ledger. Such records are immutable and non-repudiable.
For instance, Blockchain is a specific kind of DLT which rose to prominence as the underlying technology for Bitcoin. The report not only highlights the positive aspect of DLT but also suggests various applications for it, especially in financial services. “The DLT-based systems can be used by banks and other financial firms for processes such as loan-issuance tracking, collateral management, fraud detection and claims management in insurance and reconciliation systems in the securities market,” the report said. However, there are several risks and regulatory challenges – scalability, transaction speed, cyber security and data protection are key technological hurdles along with the issues regarding interoperability and integration into existing financial systems. Then there are the many legal and regulatory risks and challenges involved with DLT.
“The Committee inter-alia recommends that the Department of Economic Affairs take necessary measures to facilitate use of DLT in the entire financial field after identifying its uses, and that regulators RBI, SEBI, IRDA, PFRDA and IBBI explore evolving appropriate regulations for development of DLT in their respective areas,” the report said. The panel also recommended the use of DLT to reduce compliance costs for KYC requirements, adding that the Ministry of Electronics and Information Technology (MeitY) and the Goods and Services Tax Network could play a major technology supportive role for exploring and building the uses of DLT in trade financing by enabling the growth of trade invoicing through such technology.
Last but not the least, the panel suggested that the Government should keep an open mind on issuing an official government-backed digital currency in India, to function like bank notes, through the RBI. According to the report, while it may be possible to visualise some models of future official digital currencies, “as of date it is unclear whether there is [any] clear advantage in the context of India to come up with an official digital currency”. The committee recommended that, if required, a fresh panel may be constituted by the Department of Economic Affairs, with the participation of RBI, MeitY and DFS representatives for examination and development of an appropriate model of digital currency in India.
The crypto markets have been unprecedentedly bullish this year since digital assets started attracting capital from big money managers and corporate giants. The acceptance by big investors drove confidence among smaller speculators. Earlier this month, Tesla revealed that it had made a US$ 1.5 Billion investment in bitcoin, pledging to start accepting it as a form of payment for its electric vehicles. Bank of New York Mellon, the US’ oldest lender, announced plans for storing bitcoin and other cryptocurrencies for their clients. At the same time, Mastercard said it would support the use of some cryptocurrencies on its network in 2021, while US asset manager BlackRock and payments company Square have outlined plans for supporting digital currencies. Following multiple surveys harshly criticising bitcoin and other cryptocurrencies, Deutsche Bank seems to finally see the ‘condemned’ assets as an opportunity, getting into the game with plans for a cryptocurrency custody platform.
According to December’s report from the World Economic Forum, Germany’s biggest bank has already created a Deutsche Bank Digital Asset Custody prototype. The model is reportedly aimed at developing “a fully integrated custody platform for institutional clients and their digital assets, providing seamless connectivity to the broader cryptocurrency ecosystem.”
The recent episode of police inspector Vaze episode in which, gelatin rods were planted and money was demanded in cryptocurrency.
India is yet ready for crypto currency and she can wait for some time!