crypto market: Samvat 2078: A rollercoaster ride for cryptos with lots of hiccups
Financial markets worldwide witnessed many unnerving events. And the cryptocurrency market was no different!
A year ago, during the last Diwali, everything was shiny for the crypto market. Prices were continuously increasing, and many cryptocurrencies reached their all-time highs. Unfortunately, things are not the same now. And that’s not necessarily a bad thing! The reason is simple. The prices are corrected and the valuation is fair. Let’s dive a little deeper to understand why this is true.
The global crypto markets have lost billions of dollars, taking their total market capitalization to under $1 trillion in just one year from nearly $3 trillion. Meanwhile, the Indian government has also been critical of this asset class and has launched tax reforms to neutralize demand.
Bitcoin plunged from a peak of around $68,000 (as of November 2021) to less than $20,000 in eight months. Ethereum also faced a downward spiral from $4,800 to around $1,000. Other popular cryptocurrencies among Indian audience such as Binance Coin and Solana have also witnessed massive falls.
Key factors that influenced the crypto market in Samvat 2078:
Inflationary environment
The Russia-Ukraine conflict and China’s Covid-19 lockdown policy have disrupted the overall production of goods worldwide. This resulted in an increase in food prices and production costs.
The rise in inflation has forced global economies to raise interest rates, which has a negative impact on international financial markets. The US and UK recorded inflation of 8.6% and 9.1% respectively as of May 2022.
India’s inflation rate was 7.04% at the same time, but it remains higher than the RBI’s target range of 2% to 6%. The RBI acknowledged the economic uncertainty due to the inflationary environment caused by external triggers. Therefore, the overall risk factor forces Indian investors to leave the crypto markets, considering the volatility.
Indian Regulatory Environment
According to the RBI, the crypto market is designed to circumvent regulations, which makes them act cautiously. Sticking to its philosophy, the Indian government introduced crypto tax laws that impose a 30% tax rate on cryptocurrency earnings and a 1% withholding tax (TDS) on cryptocurrencies.
The new tax reforms reduced the trading volumes of Indian crypto exchanges. Also, cryptocurrency companies in India are coming under regulatory scanners for financial irregularities.
Crypto project failure
Recent events such as the Terra Luna crash further forced governments to strengthen their stance against cryptocurrency. The crash gave algorithmic stablecoins a bad reputation, undermining public confidence in cryptocurrencies.
The three-edged sword of inflation, strict regulation and project failures is slowing down the crypto movement in India.
Best and worst performers
Let’s start with the best crypto projects of the last few months.
Maker (MKR)
MKR is an Ethereum-based governance token for MakerDAO and the Maker Protocol. It is one of the earliest protocols in the DeFi ecosystem.
The project manages DAI, decentralized crypto with a stable value soft linked to the USD. It has reached USD 1,049 and has experienced a price increase of 74.88% in the last 30 days.
Huobi Token (HT)
HT is the native token of Huobi Global, a crypto exchange built on top of the Ethereum network. HT faced an upward movement of 68.58%, reaching $7.69.
Quant (QNT)
Quant was launched to connect blockchains and networks globally without hampering the efficiency and interoperability of the networks. QNT is currently at $169.67 and had an increase of 68.10%, closer to Huobi Token.
Below are the top three results of the past months.
Klaytn (KLAY)
Klaytn was launched in June 2019 as an open source blockchain with a focus on the metaverse, games and creative economy. KLAY fell by 33% to reach $0.133.
Chillz (CHZ)
Chillz is a well-known crypto project in sports and entertainment. It enables users to participate in the management of their favorite sports brands. CHZ saw a downward move of 30.57%, reaching $0.1675.
Ethereum Classic (ETC)
Ethereum Classic (ETC), a hard fork of Ethereum, aims to host and support decentralized applications (DApps). ETC is currently at $21.63, which is 26.29% lower than last month’s price.
Future prospects
As a best-case scenario, regulators around the world could collaborate on a global framework for crypto regulation.
But at least in the short term, the likelihood of such an event is small as international views contradict each other. At one end of the spectrum, we have El Salvador and the Central African Republic, which said: “Bitcoin is an official currency.” In contrast, China mentions, “Cryptotransactions are illegal.”
India is probably not at either end of the spectrum, considering the plan for CBDC (Digital Rupee or e-Rupee). It seems beneficial to the global remittance economy as it can effectively reduce time consumption during international transactions.
However, India’s current crypto tax rule will continue to negatively impact overall trading activity, forcing entrepreneurs to shift to more conducive jurisdictions such as Dubai.
The chance of a friendlier reform may be further reduced in India in the following cases.
– Increase in the use of Bitcoin and other well-known cryptos for illegal activities
– An increase in security breaches and other similar threats to blockchain-based payment systems
These problems may seem hypothetical, but can occur at any time. In the future, it is unlikely that India or any government will stop the spread of the crypto movement completely, but there is a chance to slow it down.
Therefore, the Indian entrepreneurs and crypto communities must continue to work with regulators to fine-tune policies to create an enabling environment.
(Author is Edul Patel, CEO and Co-Founder, Mudrex)
