• Basis

Decrypting crypto ⚡

Did you know that India has the highest number of crypto owners at over 10 crore people? Shocker? Well, it’s true! Over the last couple of years, crypto has become a hot favourite among investors, and of late - been all over the news because of its volatility and intermittent developments. Here’s a refresher on what it is, and how you can go about investing in it.

1️⃣ Decrypting crypto!

To keep it short and simple - a cryptocurrency (there are many different ones) is a form of digital currency, built on a system that allows anyone to send or receive digital payments from anywhere. Unlike a traditional bank, it does not require any prior personal verification. How is that possible you ask? Well, it uses this technology called blockchain and therefore, it makes the transaction untraceable. No lie, but we bet you’ve heard finbros all over discussing the state of affairs of crypto in our country. Our government hasn’t been too happy with the whole ‘unregulated’ bit and recently announced a 30% tax on crypto investments. Now, a national digital currency is in the works. But who knows when that will come knocking on our doors!

2️⃣ It’s rad, but should you invest in crypto?

If you go by the advice of your friendly-neighbourhood financial expert - you’re probably missing out if you’re not investing in crypto. Which is highly untrue, because investing in any instrument is a conscious, individual choice. So we’re here to break it down for you! Crypto is viewed as an asset by some investors. This is built off the belief in the long-term value of certain cryptocurrencies.

Nobody knows what the future holds for crypto though, so invest only if you:

(a) Strongly believe in its long-term prospects (b) You’re a risk-taker

(c) You’re okay with experimenting and losing some money

Also, keep in mind that not all cryptocurrencies are equal - some may involve higher risk than others. So as with all investments, do your homework and don’t just follow the herd🐑

Have you read about the WazirX fiasco? 😕

Last week, the Enforcement Directorate (ED) said that it had frozen WazirX’s (a homegrown cryptocurrency exchange) bank balances worth Rs 64.67 crore. According to the ED, some Chinese loan lending companies (which have already been shut down in India) have diverted their funds via crypto exchanges. Why is this a problem? Well, a majority of these funds have been directed to the WazirX exchange. Not only is there a certain amount of fear and uncertainty for existing investors in the platform, but it also sees major losses and withdrawals because of the ED’s probe. This volume alone has brought the value of the company plummeting. Not to mention trading volumes, which have also seen a dip. 😱

3️⃣ Should you invest in the dip?

Volatility and FOMO greatly influence crypto. The market can be swayed by a single viral tweet, and any economic irregularities. You gotta be able to stomach this if you’re planning to invest. If you’re someone who’s a pro and used to investing in the long-term, this volatility shouldn’t faze you. Word to the wise: much like any other good investment, this too takes time! So remember to curb those impulses, do some thorough research, and make hay while the sun shines? You feel us?!

4️⃣With a lack of regulation, are cryptocurrencies a safe investment or wildfire? 😱

By now, you should know that there aren’t too many laws in the world of cryptocurrency. Being decentralised, it doesn’t have a single controlling entity - i.e. no single government, person, or company owns or controls Bitcoin or any other cryptocurrency.

The risks therefore 🥵 are pretty apparent when it comes to investing in crypto! Let’s dive into a real-world example. Vauld - a cryptocurrency startup, is in the middle of a crisis. An unregulated bank for a crypto asset class, where crypto holders can perform all sorts of banking activities, Valud allows for lending and borrowing different cryptocurrencies, making a fixed deposit, or even earning interest on the cryptocurrency you deposit.

The decision to restrict access to withdrawals and deposits for their customers is in light of customers making withdrawals in excess of $197.7 million, across a span of 20 days, which has pushed them that much closer to bankruptcy.

5️⃣ What does the future hold for crypto in India?

The Indian government - much like many other countries' governments, is rather sceptical about crypto. Why, you ask? Well, in the words of our RBI governor, Shaktikanta Das, “Crypto is dangerous because it has the potential to disrupt financial stability”.

We may not be able to comment on that, but what we do know is that currently, the government is coming out with its own currency - the Central Digital Currency (CBDC). So stay tuned for the drama-rama. Closing thoughts:

The Indian crypto community sees India's digital currency plan to be a step in the right direction. The announcement came at a time when central banks around the world, including the US Federal Reserve, are debating developing their own digital currencies.

It's impossible to say exactly what will happen to the cryptocurrency market in 2023 and beyond. Although there are still more questions than answers for all stakeholders involved. But all in all - we can’t wait!