Crypto Coins Due Diligence Framework

Against the belief that China would allow Bitcoin to thrive, news has come that China has now banned financial institutions from transacting in BTC.  While full details are not yet known, the regulation may prenvent Banks from buying and holding BTC as an asset.

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The move has brought down the BTC exchange rate in BTC China to a level of around $930/- However, MtGox still traded BTC at $ 1012 introducing an arbitrage opportunity which perhaps vested interests in China can exploit. At the same time quoted BTC at $938. These variations introduce a certain level of uncertainty for the investors reflecting the current confusion that prevails in the global BTC market. Perhaps this also reflects the impact of the fear of regulation that is operating in the background.

In India there is still no proper exchange though some jobbers are offering to buy and sell Bitcoins for rupees. The latest quote from, an Ahmedabad based operator was 1BTC=INR62746 (equivalent of US$ 1014.40). The operator however adds a 3% fees making the net cost much higher. The operator is also buying BTC at Rs 59325/- keeping a trader’s amrgin of nearly 5%.

It may not be correct for Indian residents to buy or Sell  BTC in Foreign BTC exchanges since this may fall within the foreign exchange regulations. However there  may not be any bar at this time for buying or selling BTC within India  by Indian residents to other resident Indians. Mining  also does not appear to be  in violation of any known law in India.

The problem arises however when hype is built around the Bitcoin as a currency and regulators perceive a challenge to their authority. It is this perception that might guide some regulators and force them take harsh decisions.

 However, the Chinese central banking ban for Bankers to participate in BTC trades is reasonable since the asset value is prone to speculative loss and it may not be prudent fro Banks to invest in such assets. Individuals who are able to appreciate these risks can however acquire BTC as an asset and absorb the risks associated with rate fluctuations. However in case investors lose money due to fall in BTC exchange rate they should not expect any support from the Government.

Buyers of BTC should also ensure that they buy it only from sources which have a clean title to the BTC. Otherwise they could be exposed to the risk of being part of “Money Laundering”. It may be clarified that “Money Laundering” arises when one of the persons involved between the Miner and the buyer has acquired the BTC through a criminal activity.

In view of this there is a need for proper due diligence to be applied by intermediaries such as the jobbers and the exchanges if they want to ensure that buyers are not automatically sucked into a transaction chain involving criminal money.

The regulators and the BTC industry need to focus on how to build a trust in the system by developing a “Due Diligence” standard for the intermediaries involved in the trade.

In continuation of the efforts of the undersigned at promoting Cyber Law Compliance in India, Naavi is in the process of developing “Crypto Coin Due Diligence Framwork”  to enable development of Cryptocoin industry in India on a Law Compliant foundation.


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About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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