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Dabba traders foray in bitcoins, offer daily buying and selling bets in cash

MUMBAI/AHMEDABAD: For a Rajkot-based exporter of ceramic til..

MUMBAI/AHMEDABAD: For a Rajkot-based exporter of ceramic tiles to Africa, the past two weeks cost him Rs 40 lakh—and the outgo had nothing to do with any applicable levy.

The businessman, who barely understands blcokchain or cryptocurrency, lost the money in Bitcoins. But unlike most global investors who saw their cryptocurrency holdings lose value to the price cash, this exporter lost money in dabba trading bets.

As prices of Bitcoin crashed by 70 per cent in the past two months from its peak at $20,000 to about $ 6000 on Tuesday, dabba traders have mushroomed across Gujarat, Maharashtra and West Bengal, accepting bets on price fluctuations in the cryptocurrency.

Dabba trading is an informal or grey market platform that traditionally operates in stocks and commodities and use prices on BSE/NSE or MCX as a benchmark.

From the back alleys of central Surat to some old apartments in northwest Mumbai, the traditional dabba operators are accepting bets around daily price gains or losses in Bitcoins. According to people in the know, these traders — primarily based out of Rajkot, Surat, Mumbai, Kolkata and Ahmedabad– are using the average price of a Bitcoin on Dubai and UK exchanges to benchmark and accept bets in cash.

ET spoke to a dabba trader based in Gujarat, some investors and their tax advisors. While the quantum couldn't be ascertained, traders claimed that business could be at least 20 per cent of the total trading on official crytptocurrency exchanges in India. The total revenue of the top 10 exchanges in India could be about Rs 40,000 crore, according to tax officials scrutinising these companies.

"Just like normal trading in future and options (F&O), one can go long or short or take bets on prices of Bitcoins. The margins have to be settled every day by 8 pm and in some cases, a leeway of 24 additional hours is given," a trader said.

All trades for the Indian participants are made in cash.

Operators claim that they have opened an overseas trading account either in the UK or Dubai, where actual cryptocurrency trades corresponding to Indian bets would be carried out.

"A bank account in the UK or Dubai is linked to the trading account," said a trader based in Rajkot.

The trade is facilitated by a local dabba operator who works as a bridge between the Indian investor and the overseas broking firm.

"The Indian individual/user gives, say, Rs 1 lakh in cash to the dabba operator as margin money, on which he can lay bets up to Rs 4 lakh on Bitcoins or any other cryptocurrency. When the cash is given and bets are placed, actual buy or sell orders are given in Dubai or the UK," explained another dabba trader based in Surat.

In case of losses going beyond 30 per cent of the margin money limit, a sell order is given on the UK or Dubai exchanges. The local operator will deduct the losses incurred in the trading from the margin money and hand over the remaining cash to the Indian investor.

"In the case of profit, if there is 20 per cent profit on say Rs 4 lakh trading, then the profit turns out to be Rs 80,000. In that case, the local operator will hand over the profit money to the user (Indian individual) in cash and the 30 per cent margin money would remain intact for future trading," said the Rajkot-based businessman who lost Rs 40 lakh.

The payment between the Indian dabba operator and his counterpart in the UK and Dubai is settled through the hawala network.

Overall, local operators get 1 per cent to 2 per cent commission for each trading settlement. A person aware of such transactions said: "One of the operators does about Rs 100 crore to Rs 150 crore of trades in a month."

The cash transactions in dabba trading could come under government scrutiny, said industry trackers.

"Dabba trading is illegal in India for not only cryptocurrency but also stocks and commodities. Anybody dealing in cash and taking positions may get into trouble as the government is also looking at blockchain technology in the future," said Abhishek A Rastogi, partner, Khaitan & Co, a law firm.

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