The phenomenal rise in the value of bitcoins, from January 2017 at about $700 to about $16,700 today, has drawn many investors to this new area of investment despite warnings of a possible bitcoin bubble burst by market watchers and analysts. A Reserve Bank of India’s (RBI) cautionary note on December 5 to investors and traders has not deterred investors.
After the value of bitcoin crashed in 2011, there was a lull. But the sudden spurt in value has led investors, many of whom do not even understand the basics, to crypto-currencies, said Mumbai-based technical analyst Ananth Acharya. “People are rushing to invest because not many have lost money. Several investors are holding it in the book, but this bubble is not going to last too long,” he predicted. “With no legal framework either to support or ban trading in crypto-currencies, everyone is on a free run.”
Another Bengaluru-based technical analyst said there has been a sudden spurt in advertisements in the last three months with the value of bitcoins rising. “Interest is being generated by showing how people have made huge amounts in one year. Social media and internal mails are being extensively used to attract potential customers.” Unfortunately, many don’t even know how the bitcoin trade works, he added.
‘Dabba trading’
Meanwhile, though there are several agencies that are operating on the lines of an exchange to trade bitcoins (some of whom were surveyed by Income Tax officials on Wednesday) by following some of the ‘know your customer’ norms and going through regular banking channels, industry insiders say “dabba trading” has also started bitcoin trade.
“There is neither account nor involvement of banking transactions in illegal dabba trading that is run parallel to the legal trading. Actually, the dabba trader does not even invest, but holds on to the investors’ money. Here, there is only cash transaction and it is highly likely that unaccounted money is invested,” said a trade analyst. According to him, the concept of “contract for difference” (CFD), which is not legal in India, is used and investment in bitcoins is also based on CFD.
According to a Bengaluru-based investor, the settlement does not attract tax. “There is no tax deduction at source since profit and loss statement is not being prepared,” he said. He also acknowledged that cash settlements in parallel dabba trading is happening in bitcoins too though not many are selling these days. The investor, who did not want to be identified, said, he also trades in bitcoins through his account in the Middle East though he also trades through “exchanges” in India.
