Real Wealth in Virtual Assets
With technology transforming paper currencies into digital forms, many nations have opened the door to cryptocurrencies. But the extreme volatility in the market has kept the Indian government hesitant to give crypto trade the green light. The Reserve Bank has been issuing warnings against the uncertainty of investing in virtual currency.
The untamed volatility of cryptocurrencies resembles that of a wild stallion – more unpredictable than the charging bulls or the biting bears of the stock market. And, there’s no watchdog to control the $1.33-trillion market. It’s a market for the bullish, not the risk-shy.
The emergence of virtual currency took the world by surprise around a decade back with major currencies like Bitcoin and Ethereum being introduced as an alternative mode of exchange. One can purchase goods and services using Bitcoin or Ethereum or any Altcoin. There has been a lot of interest in virtual currencies over the last few years with many people buying them because they believe it will increase their investment portfolios.
Crypto is not a crime in India now but is still out of the legal ambit and the government is yet to reveal its stand on the virtual asset. Cryptocurrencies and crypto assets were banned in India from April 2018. In March 2020, the Supreme Court announced culmination to the Reserve Bank of India’s April 6, 2018 decision that restricted financial entities from providing services to cryptocurrency players.
This was a turnaround time for cryptocurrency in India. The long lockdowns form March 25, 2020 took cryptos to an inflection point as mobile phones became the lifeline for most of us through the nation’s battle with the Covid-19 pandemic. In the sweeping wave of digital disruption, cryptos became an instrument of choice for their three fundamental properties – they are electronic, they are not liability of anyone, and they allow peer-to-peer exchange.
Cryptocurrencies are bought and sold like stocks in stock exchanges. The main difference is that there is no physical feature to the instrument. There are several exchanges to buy and sell cryptos and the investor needs to pay a fee for trading. The charges vary across exchanges and across currencies being traded.
In the absence of any regulatory mechanism, there is no circuit breaker or warning system, for crypto trade. The inherent volatility of the instrument stems from the fact that the assets can be traded in minute fractions. Cryptos can be divided up to several decimal places and an investor can buy even a fraction of a currency. Selling cryptos is classified as a business and one has to pay taxes according to business and professional tax slabs and, as an investor, profits would fall in the ambit of capital gains tax.
The pandemic has brought a change in consumer behaviour. Investors are now exploring new-age options and going for assets like cryptos such as Bitcoin, Ripple and REIT while holding some liquid cash as emergency funds.
Despite warnings and cautions, some 1.5 crore Indians today hold crypto assets worth Rs 15,000 crore, making India the second country after Vietnam with the highest rate of adoption of cryptocurrency. A Finder study says that 30 per cent respondents in India own cryptocurrencies. While Bitcoin leads the pack, Ripple, Ethereum, and Bitcoin Cash follow as the next most popular crypto coins in India. With Bitcoin’s value surging at breakneck speed, it would seem that many investors are taking a risk for potentially high returns when considering what their next investment should be.
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