Bitcoin under attack in India. First a warning, then a raid.

I have previously discussed the risks involved in dealing with Bitcoins, which are primarily regulatory.

I must be psychic, or at least recognize that regulators do what they do: shut down what they cannot understand or control. The Bitcoin risk is becoming real. First, The Reserve Bank of India issued a warning to people dealing in Bitcoin about the risks involved in dealing in Bitcoin. Were they just being helpful?

The warning did not explictly say that dealing in Bitcoin was illegal, but it offered this bit of foreshadowing:

“The Reserve Bank has also stated that it is presently examining the issues associated with the usage, holding and trading of VCs under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations.”

A couple of days later, Indian authorities raided a Bitcoin trading platform, buysellbit.com.in. The Enforcement Directorate conducted the raid since the central bank does not provide permission to indulge in such transactions [Ed.: We assume something was lost in translation here, but you get the idea.]

“’We are gathering the data of the transactions, name of the people who have transacted in the virtual currency from Gupta’s server that is hired in the US. At present, we believe that this is a violation of foreign exchange regulations of the country. If we are able to establish money laundering aspect then he can be arrested,’ said a top ED official.”

Coming soon to a U.S. regulator near you? An arrest of another Dread Pirate Roberts in the next Silk Road-type incident could be the catalyst for a crackdown, but I doubt it would take that much. We can all watch in 2014 whether Bitcoin goes mainstream enough to avoid a government response. However, that didn’t work for e-gold or PayPal in the 90’s or online poker in 2011.