2022 to witness a new era for cryptocurrencies

Slump in the Cryptocurrency triggered the world’s largest digital asset to shed 17% during the last month of the year, putting it on track for its worst performance since May, when it lost 35%. Other cryptocurrenices have also fallen during this period. For the third consecutive year, Bitcoin has outperformed both stocks and gold. Year-to-date, Bitcoin is up almost 65%, meanwhile, the S&P500, the benchmark index of the world’s largest economy, manages 27.6%, and gold is down around 7%.

We can’t deny the fact that digital money is the inevitable future and Borderless, global, decentralised currencies are the future. Bitcoin and other digital currencies are widely regarded as a shield against inflation mainly because of its limited supply, which is not influenced by its price. Bitcoin investors have witnessed a roller-coaster ride in 2021 as prices went through a roller coaster ride. There was an initial surge from $30,000 dollars to $62,600 by April 2021 as most risk assets soared on abundant global liquidity. But the lethal second wave of the pandemic and the movement restrictions caused prices to retreat to $30,000 again by July.

Another rally ensued from then, largely led by investors looking at fresh pastures as stocks began flagging. This was the period when bitcoin exchange traded funds were launched and many famous fund managers proclaimed that they would be including cryptocurrencies in their portfolios.

This rally ended at $67,582 with the Chinese ban on all cryptocurrency trading and mining. Further, threat of regulatory action in other countries including India pulled prices lower towards $46,000. Despite this volatility, bitcoins have trumped all other asset classes including stocks, bonds and gold. India has ranked second globally in the number of traders using the crypto trading platforms.

As prices sky-rocketed and tales of people who had made outsized returns began doing the rounds, the number of traders on platforms such as Wazirx, CoinDCX, BITbns and so on surged. According to reports, around 2 crore Indians are actively trading on the crypto exchanges and the number of cryptocurrency holders in India has crossed 10 crore. The RBI has had an important part to play in dampening the fervor towards cryptocurrencies by repeatedly coming out with statements and reports on how private cryptocurrencies including bitcoin pose a systemic risk and they are also prone to frauds and to extreme price volatility, given their highly speculative nature.

Market capitalisation of the top 100 crypto currencies has reached $2.5 trillion. Cryptocurrencies could go through a quiet period, while they wait for the directives from regulators of major economies including the US and India. Moreover, in emerging markets and developing economies, the advent of crypto can accelerate what we have called “cryptoization”—when these assets replace domestic currency, and circumvent exchange restrictions and capital account management measures.

Deepak Sahu, President & CEO, VARINDIA