Investment into Bitcoin is alarming

Bitcoin, the largest cryptocurrency by market value, has moved with traditional markets lately. Behaving similar to a tech stock, the correlation between Bitcoin, the S&P 500, and the Nasdaq has hit all-time highs in recent months. For example, Bitcoin was skyrocketing in November 2021, hitting an all-time high of nearly $69,000. But less than three months later the cryptocurrency had lost nearly half its value, plummeting to around $35,000. That volatility attracts traders looking to make a profit, but it’s nerve-wracking, especially for new investors looking to get started. We have seen how the popular celebrities like Kim Kardashian and tech giants Elon Musk have talked about the declining values of cryptocurrencies and how it is affecting them.

All cryptocurrency transactions are recorded on decentralized ledger systems called blockchains, which let users transact namelessly, without registering a bank account or interacting with traditional financial gatekeepers. Amid the great crypto crash, a report says that Bitcoin investors are coming back even though major altcoins continue to bleed. The price of BTC fell even further as Terra LUNA disintegrated into ashes, wiping out most of investors’ wealth. Analysts have stated that BTC’s current upward momentum might be limited and a bullish price rally is one of the last things that investors should expect from the crypto. The year 2022 will much likely be similar to the 2018 bearish crypto market. Key indicators have estimated that according to the previous all-time dips in the bearish market conditions, the BTC price could be somewhere between US$14,000 to US$21,000. Such price developments generally discourage investors from diversifying their investment portfolios by indulging in digital assets. And if Bitcoin really falls as low as US$14,000 or even close to it, it would actually result in the loss of nearly 80% of its value from its all-time high of nearly US$68,000.

Whereas, there is no official data available on the size of India's crypto market, but industry estimates say, the number of investors ranges from 15 million to 20 million, with total holdings of about 400 billion rupees ($5.25 billion).The Indian crypto exchanges CoinSwitch Kuber and WazirX have disabled rupee deposits for the purchase of cryptocurrency through a widely-used state-backed transfer network, spurring users to renew demands for regulatory clarity. In February, India decided to tax income from cryptocurrencies and other digital assets at 30%, signalling those authorities accepted digital currencies, but uncertainty over regulation has weighed on the industry. The Securities and Exchange Board of India (SEBI) has echoed the concerns raised by the Reserve Bank of India on cryptocurrencies. The market regulator has told lawmakers that consumer protection and enforcement of any regulatory regime over crypto assets would be challenging due to the decentralised nature of the digital instruments. “As crypto assets are maintained in decentralised distributed ledgers, which are nested in computer nodes spread all across the globe, there is a great likelihood of execution of unauthorised trades not in consonance with any regulatory framework,” SEBI has told the Parliamentary Standing Committee on Finance. The market regulator also said that clarity needs to be brought on whether cryptocurrencies can be legally defined as securities. “If crypto assets are not banned, then there is a need for feature-based characterisation of the tokenized version of the assets, which may attract supervision of different sectoral regulators,” It also suggested possible regulation of crypto trading platforms by the RBI under the FEMA as crypto assets are available for trading in foreign jurisdiction as well and consumers abroad can remit funds to India using such currency. As part of customer protection, SEBI had also proposed various measures to the Advertising Standards Council of India. But investors are quite worried about the impact of global incidences on the crypto market. Even after the massive volatility in the crypto market, Bitcoin is still being adopted by some of the major national and democracies in the world.

S Mohini Ratna, Editor, VARINDIA