Crypto Crash: Young and old investors alike navigate tough times

In June last year, 21-year-old student Maanvir Singh made his first crypto investment after recommendations from friends, and his own research watching YouTube videos.

Despite pushback from his parents, Singh convinced them to lend him Rs 2.5 lakh, all of which he has invested over the past year.

"They were not very happy with my decision to invest in cryptos. They tried to discourage it because they believed all of this to be fake. But I still wanted to invest," he said.

Today, his investments are down by over 3/4th to Rs 56,000. One of his investments was Luna, which witnessed the worst fall, of 100 percent; the value of the coin is now almost zero. For the uninitiated, Luna and Terra coins come under the Terra ecosystem. To maintain the price of Terra, the Luna supply pool adds and subtracts from Terra’s supply.

Both the coins help to keep the pricing intact as users burn Luna to mint Terra and even burn Terra to mint Luna via an algorithmic module.  But, over the last few days, due to algorithmic issues, users holding Luna suffered huge losses, resulting in its crash.

However, Singh is not deterred. He is confident about investing in cryptos going forward.

"This crash is a matter of a month or two. It will pass. I will be investing more in cryptocurrencies," he said.

On the other hand, Nikhar Kwatra, 21, is feeling dejected amid the crash. Her investments worth Rs 32,000 are down to Rs 11,000

"I invested my savings into multiple coins in August last year. I have not seen any profits since then; I am losing trust in this," she said.

Many like Singh and Kwatra invested in crypto coins, which saw lakhs of millennials and GenZ investing into the space over the past year. Indian exchanges like WazirX and CoinDCX registered millions of users for the first time, by the end of 2021.

Despite the lack of regulations in India, many chose to invest in cryptos in the hopes of getting returns that are higher than any other asset class. Youngsters around the world have seen cryptocurrencies a lot like a movement to pull back the controls from governments, regulators, or any kind of authorities. Over the past few years, low interest rates have left young Indians with no real investment options.

While the crash of 2022 is a first for many of these young investors and a lot of withdrawal is happening, experts say that more than the young investors, boomers, i.e., those born between 1946 and 1964, are more concerned about this cycle.

“I have been getting calls from a lot of the boomers (aged 57+) actually, who are more concerned about the market situation now rather than the young ones. The youngsters are actually more rooted into the ecosystem and have a firm belief in this world,” said Aman Sanduja, founder of Moving, a crypto community-focused platform.

The young ones are mostly learning from Twitter, Discord and the Telegram channels, which are quite active with commentary from crypto experts, and are now looking at long-term investments, says Sanduja.

Many of these young investors that Moneycontrol spoke to are looking to hold on to their portfolios and are preferably choosing to invest in Bitcoin and Ethereum now, compared to other coins going forward.

 A repeat of history 

While many are giving the example of 2018, when the crypto market had witnessed a similar crash, this time questions are being asked about stablecoins, which were always perceived as being less risky. Luna’s crash has raised many doubts among investors after it got delisted by a number of global and Indian exchanges.

“After prices of Bitcoin and Etherium started falling, the fear around other cryptocurrencies started spreading, including the utilities of stablecoins. The primary question was; will the stable coin market sustain. But, coins like USDT came back, and the sentiments around stablecoins changed. So, you will see that the fear has actually come down,” said Vikram Subburaj, co-founder and CEO of crypto exchange Giottus.

Overall, Stablecoins have a market cap of around $170 billion, while the total crypto market is estimated to be around $1.2 trillion, according to CoinMarketCap data. Stablecoins like Tether have a market cap of around $80 billion, having surged from just $4.1 billion at the start of 2020. USD Coin, which stands second, has a market cap of $49 billion, according to CoinMarketCap data.

The ups and downs in the past year, many caused by Tweets from Tesla CEO Elon Musk, have made many wonder if crypto is as unreactive to triggers and global events as it was meant to be.
“The first major underlying fact in any market where the volatility is high is that you invest only that portion of money that you don't need for the next two to three years.  People who have witnessed 2018 already know this but this market will again become a learning for a lot of people,” said Subburaj.

Echoing similar sentiments, 26-year-old Dheeraj Shah, a crypto and NFT influencer and host of the podcast Web3 With Dhee, had this to say on the domino effect of such crashes: “Personally I see these crashes as a cycle. But whether the protocols are decentralised or not, if there is fear, it spreads very easily, right? No human behaviour can be decentralised because we are very much alike, driven by fear and greed. That is why we buy and sell. And all the people do it together after hearing some news.”

Not the end of the road?

Barnik Chitran Maitra, Managing Partner and CEO at management consulting firm Arthur D Little, believes that there is more to come in this down cycle. The crypto space has seen interest from two kinds of investors — those who believe in the cause of crypto, blockchain and Decentralised Finance, and those who invest purely with the hope of getting returns.

According to Mitra, “In India, the ones who invest for the cause are a minority. Most of the people who have invested in India over the last few years have actually got lured by the promise of attractive returns on an asset class. That segment is roughly 80-90 percent of Indian investors.”

“Many of those investors, who invested after seeing ads and thinking that you will only get positive returns, especially those who have invested in the last couple of years, will continue to see significant disappointment at least over the next few quarters,” Mitra added.

Zerodha founder and CEO Nithin Kamath believes that this down cycle will help correct a lot of mis-selling that has happened over the past few years.

“People need to know that crypto is an extremely risky asset class. If someone is participating, they need to do it knowing that it can go to zero. That means they are allowed to allocate only a small portion of their capital, because the fundamental thing in investing is that higher the risk, the lower the allocation,” Kamath said.

Mounting troubles for Indian exchanges

The crypto crash is a global phenomenon, but Indian investors and exchanges have challenges of their own. There is the 30 percent tax on gains from virtual digital assets (VDAs), including crypto and the upcoming 1 percent TDS (tax deducted at source) for all transactions.

Since the 30 percent tax came into effect on April 1, exchanges have already lost a lot of volumes. The 1 percent TDS is said to be the biggest deterrent for current and prospective investors. In the last two weeks of this month, average trading volumes on WazirX, one of the largest Indian exchanges, stood at about $21 million, while volumes on CoinDCX totalled about $17 million, as per data sourced from research firm CREBACO.