Indian Bitcoin exchanges to create central repository of users, bring in self-regulation
The purchase data of buyers and sellers of the virtual currency can then be traced through either the Aadhaar ID or PAN of the user.
Even as cryptocurrency Bitcoin is coming under intense scrutiny worldwide after its prices went on a roller-coaster ride, the Indian currency exchanges handling Bitcoin trade are trying to stay on the right side of the law.
Finance Minister had made a mention in his last Budget speech in the Parliament that the Government considers cryptocurrencies illegal tender and will not recognize any payments or transactions made with them. At the same time the Finance Ministry has set up a committee to review the functioning of the cryptocurrency exchanges and proposes to setup a regulating body on the lines of the Stock Exchanges Board of India (SEBI). Now, the Bitcoin exchanges in India plan to create a central repository of clients and will ultimately put in place a self-regulatory mechanism to appear transparent.
This move comes amidst reports of the Income Tax authorities sending out notices to 100,000 investors in cryptocurrencies asking them if the amount they have invested have been reflected in their income statements and the corresponding taxes have been paid by them or not.
By this move by the Bitcoin exchanges, the details of the buyers and sellers of the digital currency through the exchange can be traced through their Aadhaar or PAN numbers. The repository will also hold information on the details of the transactions, including the frequency of the transactions and the pattern etc.
In fact, going one step ahead, the exchanges will submit the details of their proposed repository to the committee being setup by the Indian government, which is expected to submit its recommendations to the government before March 31. In the current scenario, though the individual cryptocurrency exchanges follow the normal KYC norms of registering the identity of the dealers on their exchanges, the overall information does not get shared among the exchanges.
As mentioned, the proposed move to create a central repository of information is meant to present to the government that they are self-regulating institutions and will not permit any illegality in their transactions, including money-laundering by the customers on their platforms. They intend on creating a “code of conduct” for their members and customers.
The tumble in cryptocurrencies that erased nearly $500 billion of market value over the past month could get a lot worse, says Goldman Sachs
The tumble in cryptocurrencies that erased nearly $500 billion of market value over the past month could get a lot worse, according to Goldman Sachs Group Inc.’s global head of investment research.
Most digital currencies are unlikely to survive in their current form, and investors should prepare for coins to lose all their value as they’re replaced by future competitors, Goldman’s Steve Strongin said in a report dated 5 February. While he didn’t posit a timeframe for losses in existing coins, he said recent price swings indicated a bubble and that the tendency for different coins to move in lockstep wasn’t rational.
“The high correlation between the different cryptocurrencies worries me,” Strongin said. “Because of the lack of intrinsic value, the currencies that don’t survive will most likely trade to zero.”
Today’s digital coins lack long-term staying power because of slow transaction times, security challenges and high maintenance costs, according to Strongin. He said the introduction of regulated bitcoin futures hasn’t addressed those concerns and he dismissed the idea of a first-mover advantage—noting that few of Internet bubble’s high fliers survived after the late 1990s.
“Are any of today’s cryptocurrencies going to be an Amazon or a Google, or will they end up like many of the now-defunct search engines? Just because we are in a speculative bubble does not mean current prices can’t increase for a handful of survivors,” Strongin said. “At the same time, it probably does mean that most, if not all, will never see their recent peaks again.”
Strongin was more upbeat about the blockchain technology that underlies digital currencies, saying it could help improve financial ledgers. But even there he sounded a note of caution, arguing that current technology doesn’t yet offer the speed required for market transactions. Bloomberg
2017 saw a rush of capital into the cryptocurrency markets, and there’s no sign 2018 will be any different. And millennials are keeping the frenzy booming.
According to a recent survey conducted by Blockchain Capital, 30% of those in the 18-to-34-age range would rather invest $1,000 in Bitcoin than $1,000 in government bonds or stocks. The same study also indicates that 42% of millennials have heard about Bitcoin, compared with 15% awareness among those aged 65 and up.
The millennial interest in trading cryptocurrencies is hard to ignore, yet they are not the only ones interested in this market. The competition for the coin is expected to become tougher in 2018 as new players enter the domain.
It’s safe to say that this year, more institutional investors will start trading cryptocurrencies, especially Bitcoin. Yet, at the moment the bitcoin market already faces a significant supply and demand imbalance despite the high price.
According to Timothy Tam, an ex-hedge fund trader and co-founder of CoinFi, an advanced market intelligence platform for cryptocurrency traders, it looks like the existing equation might force prices even higher. “There’s limited supply because, aside the fact that there will only ever be 21 million Bitcoins in circulation, most of the holders of Bitcoin are long terms holders. The demand on the other hand keeps soaring,” he explained.
Yet, Bitcoin isn’t the only investment-worthy coin on the market. Ethereum, Ripple and Litecoin prices keep climbing up as well. If you want to invest in cryptocurrencies, here are the essential tips to do it the right way.
1. Beware of the bots
Financial markets are prone to speculations and cryptocurrency trading is no exception. Some “savvy” players are now using bots to artificially inflate the coin prices and manipulate the markets.
Timothy Tam points out that bots can seriously hamper your investment. “In 2017, Neo – a Chinese alternative to Ethereum – went from $34 to $3.74 in a matter of seconds, before returning on $34 mark. Trading bots artificially caused the price dip, which resulted in a flash-crash for a number of investors, while the organizing party largely benefited from this.”
Spotting the trading bot, however, is a tough call. You will need to carefully watch the market trading signals and learn to notice the abnormal trading patterns.
According to Tam, the two biggest indicators of bot market manipulations are price momentum and volume. As an investor, you should carefully watch these two parameters and try to notice coordinated buy patterns early on. The alternative is to use a cryptocurrency trading analytics platform that will do "the watch" for you.
2. Allocate your assets based on your risk tolerance
First and foremost, you should set a stop-loss level to avoid financial collapses. A stop-loss is the level of loss where the trade will get closed.
Next, keeping that number in mind, you will need to build up your coin portfolio. Think of this as managing your fund. The higher percentage should be allocated to the least volatile coins, with a smaller percent given to the least stable, yet potentially higher returning currency.
“You should keep in mind the price correlation between Bitcoin and most Altcoins to account for volatile market conditions,” Tam said. “What we noticed at ConFi is that bitcoin and the majority of other coins have an inverse relationship in their value. Once there’s a dip in the bitcoin price, everyone rushes into buying other coins and vice versa, This volatility can cause serious losses for inexperienced investors”.
The best strategy is to always keep an eye on the market signals and use those insights to adjust your trading strategy on a daily basis.
3. Resist overtrading and FOMO
Tam says both novice investors and their more experienced peers are often prone to these two mistakes that come hand in hand.
First, there’s the trading FOMO – fear of missing out on buying the new hyped coin and “losing” some potential profits. Investors often feel urged to buy a certain coin when the price is being pumped up and end up allocating a lot of over-hyped and often, illiquid assets. Also, remember the Neo case – the price may be artificially inflated by bots and the shining coin may quickly lose its value.
Next, there’s overtrading – immediately selling your coins if you see a small price spike e.g. 10-20 percent. In most cases, this could be a temporary occurrence encouraging smaller currency holders to sell their coins, before the price goes up further.
Trading a certain asset just because it's in profit is not a viable long-term strategy as it can diminish your future gains. After all, if the coin rises 10 times in price over a year, an 80% loss will wipe out that 400% gain you have initially made. Additionally, overtrading will result in a significant chunk of your assets being eaten up by exchange fees.
Disclosure: This blog post is not intended and should not be taken as investment advice.
2017 was a monumental year for cryptocurrencies and the blockchain. The price of bitcoin rose almost 2000% from $1,000 in January to over $19,000 at its peak in December. Ether, Litecoin, Ripple and other leading cryptocurrencies experienced similar spikes and a host of new cryptocurrencies burst onto the scene. $3.7bn was raised via ICOs, calling into question the future of venture capital. And finally, CryptoKitties became a blockchain sensation as sales hit $12m in their first month.
2018 is set to be another breakthrough year for cryptocurrencies. Here are my top 4 predictions:
1. The cryptocurrency market will continue to grow as institutional capital gets involved
Last month CBOE and CME announced that they would start offering bitcoin futures bringing cryptocurrencies closer to traditional financial markets and adding legitimacy to a previously notorious asset class. Goldman Sachs was among one of the first institutions to announce that it would clear futures for its clients on a case by case basis and is set to launch a cryptocurrency trading desk by mid 2018. Other institutions will undoubtedly follow suit as clients demand access to cryptocurrencies and as the infrastructure required to trade them at an institutional level is built out. This includes exchanges offering much needed compliance and security tools as well as appropriate insurance products.
In 2018, we will see the launch of numerous crypto funds. To date there are over 100 (84 of which were launched in 2017) with an estimated $2bn in assets under management. The proliferation of these funds will be coupled with the development of new cryptoasset investment vehicles (futures, ETFs and mutual funds), which will broaden exposure to even the most conservative investors. For instance, one could envisage the development of a S&P 500 bitcoin-hedged ETF or network value weighted cryptocurrency ETFs including potentially a basket of the top 5,10 or 20 cryptoassets.
2. ICOs will professionalize as experienced investors move into the market
Last year was a bull year for ICOs. Unprecedented amounts of capital were raised with some projects such as Filecoin and Tezos raising over $200m in a single round of funding.Of the 230 ICOs in 2017, many took place off the back of nothing more than an idea (usually formulated in a white paper), a team of developers, and little to no due diligence.
This year experienced investors will get involved with this new means of funding. They will demand further business validation and transparency, bringing the ICO process closer in line with traditional venture fundraising and making it increasingly difficult to raise off the back of a white paper. This trend will be supported by the development of ICO platforms such as CoinList, which carries out due diligence prior to accepting companies onto its platform, or Balanc3, which provides crypto companies with accounting and reporting tools.
The professionalization of ICOs will be bolstered by the rise of SAFTs (Simple Agreement for Future Token Sales), investment contracts geared towards pre-product, pre-ICO fundraises and accessible to accredited investors only. In a SAFT sale no coins are ever sold. Instead money is exchanged for a traditional paper contract that promises access to a future product.
SAFTs allow developers to build out a functioning network and tokens with real value prior to launching an ICO. Importantly, they also help token-based companies to comply with US securities regulation. As SAFTs become more commonplace we will see a decrease in the number of ICOs for pre-product, pre-network businesses and, as a result, the reduction in speculative token sales.
3. Regulators will take a firm stance on ICOs leading to a short term slowdown
Professionalization will go hand in hand with increased regulation globally. In 2017 we saw China and South Korea taking a stance and outright banning ICOs while the US ruled that certain cryptoassets should be classified as securities and ICOs should regulated accordingly.
Over the course of the next year other jurisdictions are likely to follow suit leading to a slowdown in ICOs in the short term. This in turn, will result in an increase in “jurisdiction arbitrage” as crypto companies flock to countries such Switzerland and Luxembourg where cryptocurrency and ICO regulations are less stringent.
Cryptocurrency trading will also come under further scrutiny. In 2018 the UK Treasury is set to regulate cryptocurrencies in line with anti-money laundering and counter-terrorism rules forcing traders to reveal their identities in certain cases. Online platforms where cryptocurrencies are traded will be required to carry out due diligence on their customers and to report suspicious transactions. Jurisdictions around the world will most likely follow in their footsteps.
In the short run increased regulation may lead to a fall in prices and trading volumes. In the long run it may help to legitimize the industry bringing it closer to the financial mainstream.
4. Concerns around scalability and performance will lead to the rise of new platforms and approaches
Both Ethereum and Bitcoin, today’s leading platforms, face numerous issues which have led many to question their long term potential. Worldwide bitcoin mining hardware now consumes roughly the same power as Denmark and some claim that by 2020 it will use more electricity than the entire world uses today.
Bitcoin transactions times now range from 10 minutes up to several days and transaction fees have risen to over $4.75 per transaction, this will only get worse as more people join the network. Similarly to Bitcoin, Ethereum suffers from limited scalability. The crytokitties craze showed that a spike in just one app can be enough to cause bottlenecks in the entire network and a jump in transaction fees.
As users become increasingly aware of Bitcoin and Ethereum’s shortcomings they will seek out alternatives leading to the rise of other currencies and platforms. Litecoin, Ripple, Monero and Zcash have already proven to be attractive alternatives to bitcoin. 2018 will see the launch of a host of new currencies such as Chia, a “better Bitcoin”. Founded by the inventor of Bittorent, Chia is set to offer more reliable, eco-friendly mining and security measures. Likewise, Ethereum’s position as the leading smart contract platform will start to be challenged by newer platforms such as NEO and Cardano.
In 2018 several solutions and upgrades to the problems above will be put forward. For instance, off-chain solutions such as the Lightning Network (Bitcoin) and Raiden (Ethereum) will allow users to circumvent some of the high transaction costs and slow speeds of transaction. An upgrade in Ethereum’s core protocol will also take place which will change the method for verifying transactions from proof-of-work to the faster and more cost-effective proof-of-stake.
2017 brought cryptocurrencies into the limelight. As prices rose to eye-watering heights, speculators flocked to the market in droves, driving prices even higher. In 2018 new currencies and platforms will emerge, experienced investors and financial institutions will move into the market and regulators will take a stance. 2018 will be the year that cryptocurrencies become embedded in the traditional financial system.
The income tax department’s survey on bitcoin exchanges was undertaken to secure information about transactions, parties involved and bank accounts used
In a first, the income-tax department on Wednesday conducted surveys at bitcoin exchanges across the country.
A spokesperson for the department confirmed the development. Exchanges operating across the country, including those in Mumbai, Pune, Bengaluru, Delhi, Hyderabad and Gurugram, were surveyed.
It was undertaken to secure information about transactions, parties involved and bank accounts used as part of the authority’s broader efforts to profile and scrutinize assessees who pose a risk of tax evasion. Income-tax surveys or visits to the premises of an assessee are meant to gather information or documents such as books of account and, in some cases, to verify cash or other valuables.
The move comes at a time the government is taking measures to reduce use of cash in the economy and to encourage digital transactions, which are easier for the tax authority to monitor as financial institutions like banks and broking houses are required to report those.
The government and the Reserve Bank of India (RBI) are not regulating cryptocurrency at the moment and the tax department wants to ensure gains from dealing in this instrument are not suppressed. One of the concerns of the central bank is that the anonymity surrounding the counter-party in virtual currency transactions may expose its users to unintentional involvement in money laundering or terror financing.
Repeated calls and messages sent to the top bitcoin exchanges and bitcoin firms including Zebpay, Coinsecure and Unocoin remained unanswered.
Sreekanth C.S., chief operating officer, Coinome, a BillDesk-backed cryptocurrency exchange launched in November this year, said he was not aware of any I-T department survey. “I am not very sure who the I-T department is targeting,” he said.
Created in 2009, bitcoin is the most popular cryptocurrency and has the largest market cap currently. According to coinmarketcap.com, the current marketcap of bitcoins stand at $287 billion. Bitcoin doesn’t have any underlying assets and derives value from use. On Wednesday, the bitcoin price crossed $17,000. In the last one year, price of bitcoin has increased over 21 times.
RBI cautioned the public on 5 December about the potential economic, financial, operational, legal, customer protection and security-related risks associated with dealing in virtual currency. The central bank said it has not given any “licence/authorization to any entity/company to operate such schemes or deal with bitcoin or any virtual currency”.
The finance ministry too set up a committee in April to review the global regulatory systems covering virtual currency and the steps India needed to undertake to protect consumers and prevent money laundering.
Gautam Nayak, a Mumbai-based chartered accountant, explained that income tax will have to be paid on any gains accruing from a cryptocurrency transaction. The tax department is likely to ask investors and traders if their virtual currency transactions were reported or not. “This could be for transactions up to March 2017. For the current financial year, one still has time to file the tax return,” Nayak said.
What is Bitcoin? How to buy it?
Bitcoin is all over the news as it has touched an all-time high above $10,000; and boy, it is making people rich. We tell you what Bitcoin is and how can you buy it.
Some call Bitcoin a worldwide payment system, some an innovative payment network, and some a new kind of money. Bitcoin is all over the news as it has touched an all-time high at $11,000, plunged to $9,000 and soon recovered to $10,600, all in one day; and boy, it is making people rich. This new fad in the digital world is making everyone go crazy after it for many reasons — what is it, how does it work and who invented it? Well, here’s an answer to most of it — if not all of it.
What is Bitcoin?
Bitcoin is a type of cryptocurrency, a digital currency which uses encryption techniques to regulate the generation of units of currency and verify the transfer of funds. It is like the money, with no physical presence but a series of codes. What makes Bitcoin more interesting is that it does not even have a legal backing from many Central Banks around the world. In short, Bitcoin is just like the money with no physical presence and no sovereign value — it is digital and private.
Who invented Bitcoin?
Nobody knows for sure. A person using the name Satoshi Nakamoto invented Bitcoin in 2009. When it went online in 2009, it carried a message: “The Times 03/January/2009 Chancellor on brink of second bailout for banks”. It was an effort to create, perhaps, a parallel currency system free from government regulation. Santoshi Nakamoto currently owns some $ 7.5 billion worth of the currency.
How does Bitcoin work?
Bitcoin is traded on exchanges using the blockchain technology. The blockchain is a digital and public ledger through which transactions made in digital currencies are recorded chronologically and publicly.
What makes Bitcoin desirable?
Some believe that since it is a private and digital currency, it may be immune to government intervention or manipulation and makes it an alluring alternative to the mainstream currency. Moreover, trading in Bitcoin is not bound by international borders, one can buy it anonymously and do trading without any digital transaction fee.
How does it work if it is not real money?
Bitcoin has no legal value and fundamental backing but there are many e-commerce platforms such as Flipkart and MakeMyTrip in India that allow Bitcoin to purchase their voucher programmes. Around the world, there are many merchants that consider Bitcoin in return for their goods and services. You can buy pizza or get a manicure done in return for Bitcoins.
What’s the problem?
The problem is that in many parts of the world Bitcoin is illegal. Since it does not have any underlying asset or value-base, it is like a bubble which can burst anytime and when if it does, the question is who would be held accountable for the loss of real money? “You can’t have a business where people can invent a currency out of thin air,” top banker Jamie Dimon said labelling it a ‘fraud’.
How to buy Bitcoins?
Anyone buy Bitcoins from various apps called ‘bitcoin exchanges’, and anonymously. These apps allow people to buy and sell Bitcoins in different currencies. Mt Gox is the largest bitcoin exchange. In India, Zebpay, Coinsecure and Unocoin are popular bitcoin trading apps.
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