Moneycontrol Masterclass | Crypto slump to last up to 18 more months

Panic and shock gripped the market over the past few weeks as Bitcoin tanked below $30,000 twice in a week, its lowest level in 16 months. This crash comes after an already volatile year when Bitcoin saw all-time highs and lows, both in 2021.

Also Read: Crypto market: Why is there a crash and what’s next?

Other blue-chip cryptos fell too, with losses ranging from 30 to 90 percent shocking many investors and followers.

In addition, Sidharth Sogani, founder and chief executive officer of CREBACO, said, “This is crypto's first recession after it gained a considerable asset size. Crypto usually works in 18-month cycles which means every 1.5 years you will see such a bear market.”

However, historically crypto has not shown a stable record with crashes and downtrends appearing more frequently than once every 1.5 years.

According to Sogani, the crypto industry is in a bad shape with trading volumes falling and no new investments coming in. He explained that when it comes to the Indian market the uncertainty around regulation of crypto is another reason why the industry seems so dry and no new investors are entering the space.

"Fintechs like Paytm Money or Zerodha or others have been really very clear that they don't want to enter crypto because of all the complexities and what they might have to forego if they get into it," said Gaurav Dahake, chief executive of Bitbns.

Sogani added that the situation is likely to remain the same until and unless the government intervenes, making the tax laws and the overall environment more conducive for the crypto space. He added, “MCA (Ministry of Corporate Affairs) didn't allow us to register our company with "crypto" in our name or agreements.”

Pitching in, Bathija said, “I'm very aware of BITBNS, WazirX, CoinDCX, CoinSwitch’s operations. We are all trying to go out of our way to be compliant. But in view of the lack of compliance requirements or guidance, what can we do?”

While official regulations through a bill are still pending, the Indian government imposed a 30 percent tax on gains from virtual digital assets (VDAs) which was implemented starting April 1. However, the industry still has a number of questions on the finer details of implementing the tax.

A 1 percent TDS (tax deduction at source) will also be applicable on all transactions starting July. The TDS has already discouraged investors and the industry has seen a massive drop in volumes which is likely to worsen starting in July.

Tanvi Ratna, founder and CEO of policy research and advisory firm Policy 4.0, said, “With regards to crypto, the tax department will be releasing a guidance in July, which will have further rules and more details on enforcement.” She added, “Once stable coins come under some sort of regulation and the minute you see the dollarisation of stable coins, it is going to create a different geopolitical dynamic.”

Further, Bathija argued, “Unregulated does not mean illegal and banking has historically always supported high growth innovative companies.” He added, “I know that bankers want to work with us, so why is it that crypto space does not have banking support. Maybe we should ask the people in charge.”

According to him, the administrators need to think about whether they want to capture the economic upside of the crypto space and come out with positive regulations. He said, “If we take a hard position on crypto, the customers will suffer, and people who want to enjoy the potential upside of this technology will move out of India.”

“We have historically been a victim of brain drain to the US. We risk that happening all over again in the 21st century because of more friendly jurisdictions such as Dubai and Singapore,” he added.

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.

Talking about the way forward for such investors, Raza suggested that they should be very careful while navigating the space and said, “As more people lose their money, regulations will have a reason and they will come up with narratives of why this industry should be banned.”

“It's going to be more challenging in coming days and there are some real threats from a regulatory perspective on stable coins and DeFi.”

The past few years also saw younger investors, GenZ and millennials in particular, investing in cryptocurrencies, mostly by borrowing money. A lot of investors were also misled by advertisements and YouTube videos promising huge and quick returns.

Also Read: Crypto Crash: Young and old investors alike navigate tough times

Advising GenZ and millennial investors, Raza said, “Never take a loan and put your money in the space. Do not fall into the narrative of a quick-rich scheme that crypto isn’t. If you want to be speculative and take risks, allocate a small portion of your portfolio for that.”

Summing up the crash and what’s next in the crypto saga, Bitbns’ Dahake said, “We have hit rock bottom so the crypto market can only go up from here on. So if you want to invest now, invest in the best assets like Bitcoin or Ethereum."