Future Trading of Crypto-Currencies

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.