Why in news?
Two futures exchanges in the US gave the green light to list bitcoin futures.
What is the fallout?
- It is a significant step in allowing mainstream investors to buy and sell the crypto-currency.
- As a result, Crypto-Currency rocketed around $11,000, while it was trading just below $1,000 in January.
- The rupee volume of bitcoin trades runs at around Rs 125 crore per day and 1.5 million Indians are active bitcoin traders.
- Other cryptocurrencies like Ethereum too have shown equally impressive gains
- But it is to be understood that, this is clearly a bubble.
- As more money is chasing this limited supply, prices have risen.
- Such bubbles arise when the market finds it hard to accurately value a new concept.
What is the rationale of traders who buy it?
- They expect that bitcoin will be recognised as a currency by more nations.
- Currently, only Japan among the G-7 accepts it as a legitimate currency.
- They also expect that more merchants, including e-commerce giants like Amazon and Alibaba, will accept bitcoin.
What are the negatives?
- Virtual currencies create multiple regulatory concerns.
- Bitcoin is convenient for hawala transactions.
- It can be bought using rupees and sold in euros, dollars, or yen, thus facilitating capital flight.
- Virtual currency-denominated Initial Public Offerings have been launched by many dubious start-ups, which seek to bypass market regulators.
Can it be banned?
- Bans are impossible to enforce.
- Anybody can just memorise private keys, retain no physical evidence of ownership, and make bitcoin transactions from any internet connection.
- Most central banks and tax authorities have not even agreed on basic definitions of virtual currencies.
- So they should emulate the Japanese and treat bitcoin as a currency, laying down rules for usage and clarifying tax treatment.
Source: The Hindu, Business Standard.
