A tumultuous year for crypto could accelerate progress towards regulatory standards for digital assets by 2023

Even as India has taken steps towards launching a digital currency with components based on blockchain technology, the crypto-related scenario continues to be debated with the RBI pointing out the risks from private cryptocurrencies and have yet to move on their regulation.

Serious collapse of the exchange FTX added to the worries but there are those who feel that disruption in the cryptocurrency market does not take away the inherent value of blockchains and such products give end users control over their transactions. surname. Blockchain technology allows the existence of electronic money.

The Reserve Bank of India has been outspoken about its stance on cryptocurrencies and Governor Shaktikanta Das said last month that cryptocurrencies should be “banned” and that if they are allowed to grow then the “next financial crisis” will come from private cryptocurrencies.

He said they were completely unfounded and it was a speculative operation.

“I still hold the view that it should be banned. Countries have different views, but our view is that it should be banned. If you try to regulate it and allow it to grow, please heed my words, the next financial crisis will come from private cryptocurrencies,” Das said.

He mentioned three main points of interest related to cryptocurrencies.

“I want to mention three points. First, the origin of cryptocurrencies, private cryptocurrencies is to bypass the system, break the system. They don’t believe in the central bank’s currency; they don’t believe it. into the world of regulated finance”. They want to bypass and beat the system. Second, they are completely unfounded. Not only that, I haven’t heard any credible arguments about the public interest or the public purpose it serves. There’s no clarity on that yet.” Third, it’s a 100% speculative operation,” Das said during the BFSI summit organized by a business publication.

Das also said cryptocurrencies present certain inherent risks to financial and macroeconomic stability.

“We’ve been showing it and its evolution for over a year, including the latest piece built around FTX. We don’t need to say anything more about our position. Time has shown. prove that cryptocurrencies have what they are today,” he added.

Das cited some estimates that the total value of cryptocurrencies is around $180 billion (approximately Rs 14,87,000) and has now dropped to around $140 billion (approximately Rs 11,56,600 billion), about essentially means about $40 billion (approximately R. 330,574 crore) has been written off.

Crypto assets are currently unregulated in India.

The government does not register cryptocurrency exchanges and has suggested that crypto assets are, by definition, borderless and require “international cooperation”.

The Government believes that any legislation that regulates or prohibits can only come into force when there is substantial international cooperation in the assessment of risks and benefits and the development of common standards and classifications. .

Cryptocurrencies involve risk and volatility but the market has attracted traders and investors looking to make quick profits.

FTX is a popular cryptocurrency exchange and collapsed in November due to reports of embezzlement of customer funds. Earlier this year, crypto hedge funds Three capital arrows (3AC) falls into liquidation with developments damaging the crypto industry.

The collapse of FTX has left one million creditors around the world locked up on the exchange or lost in revolving doors between FTX and its trading arm Alameda Research.

Cryptocurrency experts feel that the increasing adoption of digital payments and the increasing adoption of blockchain technology converges with the fundamental concept of cryptocurrencies.

Neel Kukreti, trader and founder of Crypto Jargon, said the cryptocurrency has come a long way, but it still has a long way to go for widespread adoption and use.

Finance Minister Nirmala Sitharaman in the 2022 Union Budget announced that “any income from the transfer of any virtual digital assets will be taxed at 30%. The government intended to introduce a bill on cryptocurrencies but it was shelved because they wanted broader consultations.

The Reserve Bank of India has also begun to adopt blockchain technology, as demonstrated by Central bank digital currency (CBDC) pilot.

Kukreti said the digital rupee is a good concept but it does not drive the adoption of traditional crypto assets.

He said most digital currencies are still in their infancy and subject to heavy speculation.

“Even Bitcoin, the oldest and most well-known cryptocurrency, is highly volatile. It is likely that only cryptocurrencies that are recognized as commodities will eventually survive,” he said.

Nadeem Khan, a trader who has been investing for 89 years in crypto, said India launching its own digital rupee is a great step towards large-scale crypto adoption in India. this country and added that there is a very long way to go.

He said blockchain as a technology will have a bigger impact than what is seen right now. “After all, it is a ledger. In the coming future, we may see more applications. There are many new innovative applications being developed on blockchain that can provide conveniences. useful in many industries. People are also starting to realize that blockchain can be more than just a digital currency.”

He said 2022 shows how volatile the crypto market can be, and it’s important to do your own research.

“One of the most popular sayings in the crypto space is Do Yourself Research (DYOR),” he said, adding that there is also a lot of free content online that can give a basic idea. electronic currency.

Disagree with ‘s point of view RBI Governor on the risks posed by private cryptocurrencies, he said that they could “pose a threat to the existing financial system when it is allowed to be used in tandem as a country’s legal tender.” family”.

Before making any investment decisions, it’s important to consider one’s own goals for cryptocurrencies, Kukreti said.

He said if one is a long-term investor, it may be safer to stick with a particular cryptocurrency, and for those interested in the technological aspects of blockchain, the choice can be other body.

“If you simply want to speculate and make a quick profit, the current market may not be conducive to that. Wait for the bulls to come back,” he said.

Cryptocurrencies seemed to be isolated from the financial system before the pandemic. Experts believe that for individual or institutional investors who hold both cryptocurrencies and traditional financial assets or liabilities, any large loss to crypto could put them on the balance. balance your investment portfolio.

This, in turn, will likely cause financial market volatility or even default on traditional debt.

The expert said the growing adoption of cryptocurrencies by retail and institutional investors in Asia, many of whom have positions in both the stock and crypto markets, is also one of the elements for this connection.

Even seasoned investors in the crypto space seem to have adopted a wait-and-see approach due to the series of crashes that occurred in 2022 and the cautious stance of the Reserve Bank of India.

Marc Despallieres, Director of Strategy and Trading at Vantage, said it is practically impossible to predict the direction crypto prices will take in 2023.

“However, there are a number of factors that will inevitably have an impact on valuation. The first is interest rates. Rising interest rates could continue to keep prices down. The other factor is the expected consequences from the bust. assets of FTX. There could be a higher level of government oversight and regulation. While this could be a good thing in the long term, it could adversely affect prices in 2023,” he said. speak.

Despallieres said active investors in the sector remain nervous “because there’s a lot of uncertainty in the decentralized market”.

He said the lingering mistrust could end with the expected start of regulations in India’s G-20 leadership.

“The most important goal to survive during an economic downturn is to maintain the value of assets. There is no doubt that the value of cryptocurrencies can be threatened by their volatility. But these movements also show people’s optimism and confidence in the decentralized market.Cryptocurrency is still a nascent asset in terms of people’s perception, but their potential could have an impact. significantly to the entire financial industry,” he said.

Cryptocurrency investors will be hoping that next year will see some progress in its regulatory direction.