Business Desk, ETV Bharat: Bitcoin prices hit an all-time high this week, flirting with the $20,000 mark, after rising nearly 170% in the calendar year 2020.
Higher institutional interest in the digital currency has made it one of the top-performing asset classes this year. And, unsurprisingly, the high returns are now catching the eyes of small retail investors in India as well.
Consequently, Bitcoin currency exchanges in the country are seeing a sharp jump in trade volumes in the past few months. If you have also thought of investing in Bitcoins, but have been on the edge due to lack of information, we have got you covered.
ETV Bharat talks to Shikha Mehra, an expert on Bitcoins and co-founder of MainChain Research and Consulting, to get answers to some of the commonly raised questions about Bitcoin. Based on our conversation, here’s a quick explainer on the nitty-gritties of Bitcoin trading in India.
What is Bitcoin?
Bitcoin is one of the first cryptocurrencies created in the year 2009. It is a completely digital currency with no physical presence. Its core value comes from its underlying technology i.e. the blockchain technology.
Is it legal to invest in Bitcoin in India?
In short, yes. Trading in Bitcoin is not banned in India, but it is also not regulated by any central authority. The Supreme Court of India, in its ruling pronounced on 25 February 2019, had asked the government to come up with cryptocurrency regulation policies soon, but there has been no development since then.
So, it is important to know that though you do not break any law if you trade in cryptocurrencies, there are no set rules, regulations, guidelines or any kind of government backing in case any dispute arises when trading in Bitcoins.
Where can I buy and sell Bitcoins in India?
Bitcoins can be bought and sold at various exchanges in India like Wazir X, CoinSwitch, ZebPay, CoinDcx etc. One can open a trading account at these exchanges, transfer money from the bank account to the trading account and start buying and selling cryptocurrencies like Bitcoin.
Are these exchanges government-regulated?
Cryptocurrency exchanges in India are currently running under self-regulatory organisation (SRO) framework. They do not fall under the ambit of any government regulatory framework and do not need any licence to start operations in India.
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What documents do I need to provide to open a Bitcoin trading account?
All legitimate cryptocurrency exchanges in the country would ask customers to provide their KYC details, bank account details and a registered mobile phone number to buy/sell Bitcoins on their trading platform. KYC verification is done through both Permanent Account Number (PAN) and Aadhaar Card. Also, money can be transferred to and from the registered bank account only and not from any other source.
How is profit from Bitcoin investment taxed in India?
If investors in India make profit by buying and selling Bitcoins, they need to pay capital gains tax on it. Otherwise, if you are a trader and your predominant activity is buying or selling cryptocurrencies, the profit becomes a part of your business income and will be taxed accordingly.
Do cryptocurrency exchanges share information with tax authorities?
Cryptocurrency exchanges are meant to maintain customer records, including all buying and selling activities, and can share the same information with tax authorities if asked to. This means that the income-tax department has access to the information on the people buying and selling Bitcoins in the country.
Why has Bitcoin value been on a rise of late?
Bitcoin has been the best performing asset class in the last 10 years. It is now widely being seen as an inflation hedge by a certain class of investors. As a result, a lot of corporate houses and institutions are now turning towards cryptocurrencies to diversify their investment portfolio, thereby pumping in more money in Bitcoins.
Why has Bitcoin value been so volatile?
Bitcoin is still a very thinly traded market compared to any other major asset class, hence the volatility. Just like small cap and mid cap stocks are more volatile than large cap stocks. It is expected that once the volume of trade and market depth increases, any news or development would not have that huge an impact on the value of Bitcoin value as it does now.
