Gold and bitcoin fuel demand for each other in India


Gold for Bitcoin Is New Fad as E-Currency Count Nears 500 Mark

By the Press Trust of India
via Business Standard, New Delhi
Sunday, July 27, 2014

In a fresh possible headache for regulators, including in India, "gold for bitcoin" trades are emerging as a new fad in the world of anonymous transactions, fueling further the appetite for virtual currencies.

This comes at a time when the count of virtual currencies available in the market is fast moving closer to the 500 mark, although the price of top-ranked bitcoin has begun showing signs of stability at around $500-$600 level after remaining highly volatile for most part of its half a decade existence.

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According to bitcoin traders, the stabilisation in bitcoin rates is making the case stronger for exchanging them for gold, which currently trades at less than $1,300 per ounce or about Rs28,000 per 10 grams in India.

Bitcoins, which command about $8 billion in market value, have stumbled from one controversy to another as the unregulated currency is prone to misuse and its links to gold trades could be another.

Some firms and traders have begun aggressively selling bitcoins in exchange for gold, while new websites and portals are cropping up almost every day to cash in on this new frenzy, according to industry players.

Besides, the bitcoin industry is looking at India and China in a big way as both these populous nations have a long history with gold and consume hundreds of tonnes of the precious metal every year.

"Gold for bitcoin" trades can also facilitate additional virtual demand for both the assets, compounding the woes of befuddled regulators, which are already finding it difficult to rein in bubbles created by gold, while the yellow metal is also being used extensively for black-money transactions.

While countries and financial watchdogs have tightened the screws on the bitcoin industry, especially after a series of debacles, including the Silk Road episode, the failure of the Mt Gox exchange, and persistent money-laundering charges, the gold-for-bitcoin trades could have wider implications.

"Both the assets need to be 'mined' -- one physically and the other one electronically," a bitcoin trader says. "They are also limited in nature. Also, both of them threaten the paper money system as alternatives. Besides, black money can be kept in both or change hands as per convenience."

The marketplaces for digital currencies have grown at an exponential rate with over 1,400 platforms online alone. Thanks to low transaction costs and the difficult-to-trace nature of transactions, bitcoins also are being accepted by traditional small and big businesses.

While India is yet to put in place any separate guidelines for bitcoins and other virtual currencies, the Reserve Bank of India has already warned against their use due to potential risks associated with such transactions.

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