The year 2021 has gone on record as the big year for cryptocurrencies across the world with the total market capitalisation of crypto assets touching an all-time high of $3 trillion in November. While 14 per cent of the Americans are the owner of crypto assets, India has close to 15 million crypto investors which make us the world’s second-largest country when it comes to adoption of crypto globally, according to market research firm Chainalysis.
The original Bitcoin has dominated the market with an upswing of more than 60 per cent this year, but also shares the popularity with the likes of Ethereum and Binance Coin. The endorsement of this disruptive technology by tech giants such as Elon Musk also propelled its growth, including that of meme coins such as Dogecoin.
Rising Acceptance Of Cryptos
While the rise in trade and valuation came after much volatility, the acceptance of cryptocurrencies has witnessed a steady upward trend.
Iloilo City in the Philippines became the first city in the Asia-Pacific where three luxury residential properties were sold through cryptocurrencies such as bitcoin.
Back home in India, a restaurant in Delhi became the first one to accept payments in cryptocurrencies such as Ethereum, Dogecoin, Bitcoin, and others. The restaurant, Ardor 2.1, has crafted a creative idea to lure customers by using catchy names and phrases from the crypto-verse for Indian thalis and dishes.
From Bollywood icons to tech entrepreneurs, cryptocurency has turned into the latest frenzy, with everyone looking to dive into the crypto world. Some even believe cryptocurrencies, and the underlying blockchain architecture will set off a new wave of financial innovation once the level of adoption rises.
While regulatory uncertainty continues to linger, cryptocurency has created spin-offs of its own. Non-Fungible Token (NFT) is a digital asset — a unique piece of digital life that has no copies and exists solely in the digital world. Backed through blockchain and traded through cryptos, NFTs took the art world by storm in 2021.
A single piece of digital art by Beeple was sold as NFT through Ethereum for a staggering sum of $69 million, a massive sum for something that doesn’t really exist in the real world.
The craze has also tripled the trade within three months to a total of $10 billion for the once-obscure online NFT marketplace OpenSea, drawing comparisons to the e-commerce site Etsy. Traditional auction houses like Christie’s are leaders in the NFT trade, signifying a unique understanding between old money and new tech.
India’s Crypto Boom
Now, sample this data. Venture capital funds have invested around $30 billion into cryptocurrencies, or more than in all previous years combined for the little more than decade-old technology. That’s almost quadruple the previous high of around $8 billion in 2018, or the year following bitcoin’s more than 1,300 per cent breakthrough gain, according to transaction data compiled by PitchBook Data Inc.
With more young Indian investors exploring newer investment options, cryptocurrencies have emerged as a major asset class. The local crypto market exploded when the Supreme Court overturned a previous ban last year, growing 641 per cent between 2020 and 2021, from $923 million in April 2020 to roughly $6.6 billion in May 2021, according to crypto currency research firm Chainalysis.
The country has 15 home-grown cryptocurrency exchange platforms.
According to industry estimates, there are some 15 million to 20 million crypto investors in the country, with total crypto holdings of roughly Rs 45,000 crore (Rs 450 billion).
Bitcoin saw an average return on investment of 66 per cent in November and — along with cryptocurrencies Mana, Dogecoin, and Ethereum — traded the most in volume during the festive season of Diwali in early November.
Home-grown platforms such as CoinSwitch Kuber and Coin DCX have ramped up their outreach efforts with a vigorous social media campaign and collaboration with celebrities such as film and cricket stars to promote crypto acceptance among a larger user base.
Indians are projected to invest more than $10 billion in the cryptocurrency market by 2030, according to a report by trade association Nasscom.
Blockchain is the very technology that enables the existence of cryptos, among other things. Going by the report of market research firm Research and Markets, around 56 per cent of Indian enterprises are now adopting blockchain tech and making it a part of their core operations with the industry expected to reach $241 million in India by 2030 and $2.3 billion by 2026 globally, according to a report by Nasscom titled ‘Crypto Industry in India’ in association with WazirX.
Will Cryptos Turn Into Digital Gold?
India authorities are struggling on how to regulate cryptocurrencies. The RBI has reiterated its strong views against cryptocurrencies highlighting serious concerns to the macroeconomic and financial stability of the country and also raising suspicion on the number of investors trading on them as well their claimed market value.
At least eight cases of cryptocurrency-related frauds are under investigation by the Directorate of Enforcement.
Taking into account the rapidly changing dimensions in virtual currency space, the government announced that it will introduce “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021″ seeking to prohibit all private cryptocurrencies in India, however, will allow certain exceptions to promote the underlying technology of cryptocurrency and its uses
Soon digital currencies on Indian exchanges slumped into a discount of up to 25 per cent compared to their global peers amid panic selling on the day of announcement.
The disruption caused by crypto as against traditional currency is the main challenge for regulation by central banks. The RBI does not classify legal tender and thus, does not acknowledge or guarantee its monetary value. Its hesitance stems from the basic fact that unlike the rupee, The RBI does not control cryptocurrencies.
The privately creates cryptocurrencies are therefore a parallel and unregulated currency and will be opposed by any central bank, including the RBI. Therefore, the Bill also aims “to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India”.
This will allow the RBI to exploit the benefits of blockchain and allow indians to trade in cryptos, while retaining its regulatory framework. As is evident, the government adoption of cryptos is also inevitable. While that will impact the destiny of private cryptocurrencies, blockchain tech is here to stay.
The governments and regulators have to evolve in order to provide space to disruptive technology as has been done in the past with ideas such as credit cards and online transactions.
Its right over the economy and currency are inviolable and necessary and yet keeping in step with major changes is equally important to maintain competitiveness and discouraging emergence of a parallel black economy.
The relation between cryptos, investors, and regulators has only just begun.
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