Even though India has taken steps to launch digital currencies with components based on blockchain technology, the cryptocurrency scenario continues to be discussed with the RBI, which points to the risks of private cryptocurrencies and has not yet taken steps to regulate them.
The dramatic collapse of the trading platform FTX Adding to the concerns, but there are people who believe that disruptions in the crypto market do not affect the inherent value of the blockchain and that such products give end users control over their transactions. Blockchain technology enables the existence of cryptocurrency.
The Reserve Bank of India has openly expressed its views on cryptocurrency and its governor, Shakktanta Das said last month that cryptocurrencies should be “banned” and that if allowed to grow, the “next financial crisis” will come from private cryptocurrencies.
He said they had absolutely no basis and it was speculative activity.
“I still think it should be banned. Countries have had different views, but we think it should be banned. If you try to regulate it and let it grow, please mark my words, the next financial crisis will come from private cryptocurrencies,” Das said.
He mentioned three key concerns about cryptocurrencies.
“I would like to mention three points. First, the origin of cryptocurrencies, private cryptocurrencies, is to bypass the system, to break the system. They don’t believe in central bank currency; they don’t believe in regulated finance “They want to bypass and beat the system. Secondly, they have absolutely no basis. Not only that, I have yet to hear a credible argument about what is public good or what is public Purpose it serves. There is still no clarity on that.” Third, it’s 100 percent speculative activity,” Das said during a BFSI Insight Summit hosted by a business publication.
That also said that cryptocurrencies have certain inherent risks to macroeconomic and financial stability.
“We’ve pointed to this and its developments over the past year, including the latest episode built around the FTX. We don’t have to say anything more about our stand. Time has proven that cryptocurrencies are worth what they are today,” he added.
This cited some estimates that the total value of cryptocurrencies was about US$180 billion (about Rs.14.87,000) and has now dropped to about US$140 billion (about Rs.11.56,600), which is essentially about US$40 billion -Dollar (approximately 11,56,600 rupees means the value of Rs. 3,30,574 crore) has been wiped out.
Crypto assets are currently unregulated in India.
The government doesn’t register crypto exchanges and has hinted that crypto assets are borderless by definition and require “international cooperation.”
The government believes that any legislation to regulate or prohibit can only be effective with significant international collaboration in assessing the risks and benefits and developing common taxonomies and standards.
Cryptocurrency comes with risk and volatility, but the market has attracted traders and investors looking to make quick profits.
FTX was a high-profile crypto exchange that collapsed in November due to reported misappropriation of customer funds. Earlier this year crypto hedge fund Capital with three arrows (3AC) went into liquidation with the developments hurting the crypto industry.
The collapse of FTX left a million creditors around the world with funds locked up on the exchange or lost in the revolving doors of fund transfers between FTX and its trading arm, Alameda Research.
Crypto sector experts believe that the increasing acceptance of digital payments and the increasing acceptance of blockchain technology are consistent with the underlying concept of cryptocurrency
Neel Kukreti, trader and founder of Crypto Jargon, said the cryptocurrency has come a long way, but still has a long way to go in terms of widespread adoption and usage.
Finance Minister Nirmala Sitharaman announced in the 2022 Union budget that “all income from the transfer of virtual digital assets will be taxed at a rate of 30 percent”. The government intended to present a bill on cryptocurrency but was postponed as it wanted wider consultations.
The Reserve Bank of India has also started adopting blockchain technology, as shown by their recent one Central bank digital currency (CBDC) pilot.
Kukreti said the digital rupee is a good concept in isolation, but it does nothing to encourage adoption of traditional cryptocurrency assets.
He said that most digital currencies are still in their infancy and are the subject of intense speculation.
“Even Bitcoin, the oldest and most well-known cryptocurrency, has been very volatile. It is likely that only cryptocurrencies recognized as commodities will ultimately survive,” he said.
Nadeem Khan, a trader who has been investing in cryptocurrencies for eight to nine years, said that launching its own digital rupee in India is a big step towards large-scale crypto adoption in the country, adding that another very there is a long way ahead of us.
He said blockchain as a technology will have a bigger impact than what is currently being seen. “After all, it’s a ledger. In the coming future we could see many more applications. Many new innovative applications are being developed on the blockchain that could bring benefits across many industries. People are also starting to realize that blockchain could be much more than just a digital currency.”
He said the year 2022 has shown how volatile the crypto market can be and it is important to do your own research.
“One of the most common sayings in the crypto space is Do Your Own Research (DYOR),” he said, adding that there is also plenty of free content online that could provide a basic idea of crypto.
Disagree with the views of RBI Commenting on the risks posed by private cryptocurrencies, the governor said that they “can pose a threat to the current financial system if it is allowed to co-exist as a country’s legal tender”.
Kukreti said before making investment decisions it is important to consider one’s cryptocurrency goals.
He said if a person is a long-term investor, it may be safer to stick with a particular cryptocurrency, and for those interested in technological aspects of blockchain, the choice might be different.
“If you just want to speculate and make quick profits, the current market may not be conducive to that. Wait for the bull market to return,” he said.
Crypto seemed isolated from the financial system before the pandemic. Experts believe that large losses in crypto could prompt them to rebalance their portfolios, whether individual or institutional investors holding both crypto and traditional financial assets or liabilities.
This, in turn, is likely to lead to volatility in financial markets or even a default on traditional debt.
The increasing acceptance of crypto by retail and institutional investors in Asia, many of whom have positions in both the stock and crypto markets, is also one of the factors behind this entanglement, according to experts.
Even veteran investors in the crypto space appear to have taken a wait-and-see approach due to the string of collapses in 2022 and the Reserve Bank of India’s cautious stance.
Marc Despallieres, chief strategy and trading officer at Vantage, said it is virtually impossible to predict which direction crypto prices will take in 2023.
“However, there are a few factors that will definitely impact valuations. The first is interest rates. Rising interest rates could keep prices low. The other factor is the expected consequences of the FTX bust, greater levels of government scrutiny and regulation. While this could be a good thing in the long term, it could be detrimental to prices in 2023,” he said.
Despallieres said active investors in the sector are still concerned “because there is a lot of uncertainty in the decentralized market.”
He said the ongoing distrust could end with the expected start of regulation in India’s G-20 leadership.
“The number one goal for surviving during economic downturns is preserving the value of an asset. Undoubtedly, the value of cryptocurrencies can be threatened by their volatility. But these movements also illustrate people’s optimism and confidence in the decentralized market. Cryptocurrencies are fledgling assets in terms of people’s perceptions, but their potential can significantly impact the entire financial industry,” he said.
Crypto investors will hope to see some progress towards their regulation in the coming year.
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