Bitcoin gaining ground in city despite RBI warnings

Bitcoin, the shadowy cryptocurrency whose exchanges were 'surveyed' by income tax authorities earlier this week, has arrived in the city as an investment option.

Not many know it is fraught with risk. Only tech-savvy businessmen knew about the virtual currency till recently, but now, housewives, realtors, doctors and even government employees are being lured into investing in it.

About 2,500 new users are added every day in Bengaluru, an insider said. People from the districts are invited to 'seminars' in Bengaluru, where agents tell them stories of bitcoin buyers becoming fabulously rich overnight.

Agents are using pyramid marketing techniques to promote the currency. Since they are not licensed, doing business with them is a huge gamble. Yashodha N, a homemaker from Tumakuru, bought half a bitcoin for Rs 1.45 lakh earlier this year.   She got two other people into the network, and the commissions made her the owner of a full bitcoin. She promotes bitcoins among investors in her circle.

The RBI has not stepped in to ban it, but is sounding a note of caution. The income tax authorities, who surveyed exchanges in Bengaluru and seven other cities in India, are concerned bitcoins are being used for money laundering. They are seeking details of bitcoin investors.

During the research for this story, DH found seminars being conducted in districts such as Tumakuru, Hubballi and Davangere to attract the middle class to invest in the paperless currency.

Most investors have no clue how digital currency works, and are buying bitcoins through a networking company called Trade Coin Club.

Zebpay enables online buying and selling but warns buyers not to be fooled by pyramid marketing or promises of overnight riches. 

Pavan Duggal, Supreme Court advocate and cyber law expert, says investors must be wary about cryptocurrency.

"They are highly speculative. It is a disaster that people are buying bitcoins through pyramid networking," he told DH.

'New asset class'
V Balakrishnan, former Infosys chief financial officer said China had banned bitcoins,
but India was treading cautiously.

“The bitcoin is not illegal in India. RBI only warns people about the speculation in the
currency,”he told DH.Some US exchanges allow bitcoin auctions and countries in Europe recognise bitcoins he said. Describing it as a“speculative asset class”, he advised extreme caution.

When bitcoins are converted into Indian currency, they are taxed heavily, by about 33% if surcharges are included, he said.