The bubbly ride of mercurial money

Rajeev Jayaswal

Virtually one coin can make you a millionaire. The market value of a bitcoin crossed Rs 11 lakh last week. Speculators say that this rising trend will continue and the bubble will grow bigger for some more time before it would burst. 

The charm of the coin could be judged by an example, which many people consider a fable. International media reported that Kristoffer Koch, a Norwegian had invested $26 (about Rs 1,500) to buy 5,000 bitcoins in 2009. It was not his conscious decision. He invested in bitcoins in the process of writing a thesis on encryptions. The insignificant investment slipped off his mind until the cryptocurrency gained media attention for its unprecedented valuation four years later. His $26 investment had become $886,000 by 2013; somewhere around Rs 4.5 crore. At the current valuation of $17,000 per bitcoin, Koch must be a billionaire. 

Fatal attraction

The value of one bitcoin, which surged to $266 in April 2013, crashed soon to $50. This alarmed the banking sector regulator, the Reserve Bank of India (RBI). It issued a note on the Christmas eve same year, cautioning users, holders and traders of virtual currencies like bitcoins.

"The creation, trading or usage of virtual currencies including bitcoins, as a medium for payment are not authorised by any central bank or monetary authority," said the RBI statement. 

It is true that virtual currency owners are always at the risks of fraud, overvaluation and hacking. Such victims cannot take any legal recourse because there is no central regulatory authority involved in creation and distribution of such currencies. It is believed that bitcoins and other cryptocurrencies are used for illegal activities such as terror funding and narcotics' trade. 

Alarm bell

Bitcoins became a rage again this year due to an unprecedented surge in its valuation. RBI again issued two cautionary statements - one in February and another in early December. Its latest statement released on December 5 said that "in the wake of significant spurt in the valuation of many virtual currencies and rapid growth in initial coin offerings, RBI reiterates the concerns conveyed in the earlier press releases".

The Supreme Court of India had also issued notices to the government and the RBI last month after a public interest litigation sought to regulate the flow of cryptocurrencies including bitcoins. 

Notwithstanding the RBI's cautionary notes and the notice by the apex court, bitcoin exchanges are reportedly adding over 2,500 users every day. For the taxmen, who are under pressure to meet their revenue targets, this is the greener pasture. They have already started probing trading activities of more than half-a-dozen bitcoin exchanges, including two in Bengaluru.