Virtual currencies such as bitcoins have attracted a lot of attention in the financial world, especially in recent times. Though there are lot of grey areas around the bitcoin, the fad among Indians has only increased. Many have made millions, while others have lost a pot by trading in virtual currencies. There are no regulations governing these virtual currencies in India and, hence, no guarantee of redressal if the money is stolen or lost. Considering all the pitfalls, the Reserve Bank of India recently barred banks from dealing in virtual currencies. However, some people have not withdrawn from crypto currencies. BusinessLine reached out to a few people to understand why.

A risky, volatile investment

Ankita (name changed on request), 27-year-old, a working professional from Bengaluru, was introduced to bitcoins two years back. Despite knowing the risks, she still went ahead and put money in it. “It is an amount I can live with even if I lose. I wanted to try what happens. In a few months, I made good profits,” says Ankita.

While there could be instances of easy money with virtual currencies, there are problems associated with them. Scams and illegal activities, data theft, and closing down of crypto currency exchanges have happened in the past. In an online world, a data breach is perhaps all it takes to wipe your account clean. For instance, there were claims of many cyber security breaches on big corporations such as Wipro, demanding payments in bitcoins.

While some people trade in bitcoins to make money, there are others who are in it for the long haul. Begaluru-based 29-year-old Pratap (name changed as per request) has invested in bitcoins for the long term. He says, “Bitcoin price has come down now, but it will rise again in a few years.” Pratap has no other investments.

Crypto currencies have no national borders while transacting and involve no middlemen. Attractive as the return might be from virtual currencies such as bitcoins, their price movement can be highly volatile. It went as high as $19,500 in December 2017 and reached a low of $5,900 in February 2018. Equity is considered a risky investment option but well-chosen stocks/funds have a record of healthy returns over a long period.

But in an unregulated market of bitcoins, the same can’t be said. Unlike stocks, the severe price fluctuations in bitcoins seem to be based on speculative demand-supply dynamics without underlying assets backing the cryptocurrency. This makes them far riskier.

What about the RBI’s move?

Not everyone is happy with the RBI slowly, but surely clamping down on virtual currencies such as bitcoins and ethereum. “Other countries are making moves towards digital currencies, while the RBI is barring banks from dealing in virtual currencies. It needs to keep up with change and embrace the same”, says Aparna, a 30-year-old professional working in Bengaluru. She has invested around ₹20,000 and made profit of around ₹1 lakh. “It is easy money. I was able to buy a new laptop through bitcoin trading,” says Aparna. She has put back the remaining amount in bitcoins after taking her profits.

Patna-based 36-year-old Abinav, who works for an insurance company, says, “Blockchain technology and advancement in crypto currencies should be encouraged as the future lies in this. If there are no regulations, then the government should bring in competent authority to monitor such transactions instead of imposing restrictions,” Abinav has other investments in the form of insurance and real estate.

Likewise, Pratap opinions, “The RBI has not banned trading completely, but asked banks not to get involved. At this moment, even the exchanges are trying to find a way. On the other hand, I feel the RBI could be encouraging cash transactions through this.” Though few countries such as Japan and the US have legalised crypto currencies, other countries such as China and Russia have restricted the same.

While the excitement around bitcoins is understandable, without proper regulations, there is no guarantee for your money.

Regulatory blind spots also make cryptocurrencies susceptible to be used for money laundering and other illegal activities. Thus, the RBI’s intervention seems to be for the safety of investor’s money and it may be best to pay heed.

What’s next?

The RBI’s move to bar banks and other financial institutions in dealing or providing services with crypto currencies (a form of digital currency), comes in after series of warnings in the past few years. However, people like Ankita feel it is unfair.

“Banning trading in crypto currencies, though RBI has not said so in many words, is not right.” Ankita who has not withdrawn her virtual currencies, yet, says, “I’m holding on to my investment. They used to give me 10 per cent interest every month and the lock-in period is two years. And I’m not going to touch them anytime soon.”

While trading in digital currencies may have given huge gains in a short period, you will be on your own if and when the cookie crumbles, with no regulator to help. So if an exchange is providing you 10 per cent for a month, you should be wary as this could be a scheme to attract gullible investors. Pull out your money at the earliest.

Since the RBI’s announcement, Ankita has not been able to access her crypto currency wallet properly. She has invested over ₹80,000.

Abinav who has invested a few lakhs, says, “I’m going to hold on to my investment; I have to recover my cost at least.” For such people, it is better to withdraw before bitcoins decline further. This means, he should convert his digital currencies to Indian rupees as the price recovery in bitcoins might take longer.

Some investors make the distinction between crypto-currencies and blockchain, the technology that powers it. Shailender Singh aged over 35 years, from Delhi, also an investor in bitcoins, says, “The advantages of blockchain technology should not be ignored and should be put to use in the financial system. Likewise, trading should be encouraged by the RBI while preventing all the cyber attacks which demand payment in crypto currencies.”

Shailender also plans to hold his bitcoins. The RBI too realises the potential of this technology and is stated to be keen on floating its own digital currency.

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