Market veterans highlight threat crypto assets pose to capital markets

Developed nations such as the US, the UK and Europe are legitimizing cryptocurrencies and investors are looking at them as a hedge, said veteran banker Uday Kotak.

Developed markets regulating and legitimising cryptocurrencies has come at a cost to their capital markets, market veterans said while discussing the threat that cryptocurrencies pose to the capital markets at the SEBI-NISM Research Conference on March 13.

In the discussion, the experts talked about the challenge of making Indian investors aware of the pitfalls of investing in such currencies.

Developed nations such as the US, the UK and Europe are legitimizing cryptocurrencies and investors are looking at them as a hedge, said veteran banker Uday Kotak.

“The important aspect of India's future in the context of building long-term capital for India's phenomenal growth needs is the concern of what's happening right now in the US and the development of the alternate market currency which is the crypto. In the last one year, bitcoin’s performance has been 2-3x. It is now trading at around $70,000,” said Kotak.

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He further said that several developed economies are legitimising crypto and that a significant amount of savings of many investors are going into that, taking critical pools of resources away from capital formation.

"We have to be clear in terms of policymaking and regulation," Kotak added.

Comparing equity markets with cryptos, Ashish Chauhan, the MD & CEO of BSE, said that in equity, there’s a promise of profit such as through dividends but, in nothing such in crypto.

Nilesh Shah, MD and CEO of Kotak Mahindra Asset Management Company, aired concerns about people trading cryptocurrencies without understanding the asset.

“18 crore Indians have traded in crypto and NFTs without understanding it. We need to educate investors that their savings need to be invested properly. How do I convince people that trading for ordinary individuals is injurious? How do I convince people to not invest in NFTs when you don't know how to value it," Shah asked.

Around 30 percent of bitcoins or cryptos are not accessible to their owners. “One of the investors in crypto lost half a billion dollars because he couldn’t remember the password of his account. Luckily, there’s no such issue in the stock market,” Shah added.

Shah urged regulators to build policies around cryptocurrencies which will attract global savings to India.

Earlier this week, Securities and Exchange Board of India (Sebi) Chairperson Madhabi Puri Buch said that instantaneous settlement in the regulated securities market is essential to compete with asset classes such as cryptocurrency which offers instant liquidity and other conveniences.

“If the regulated markets do not move in this direction, there is a good chance that funds will move away from the regulated markets towards crypto and similar assets. Cross-border asset classes that operated outside regulated markets had the advantage of anonymity, tokenisation and instantaneous settlement. While anonymity is out of the question in a regulated market, it is possible to offer the other two,” she said.

A cryptocurrency is a form of digital asset generated by a distributed, decentralised network. This structure allows them to exist outside the control of governments.

As of 1:00 PM, the world’s biggest cryptocurrency - Bitcoin was trading at $72,828. In the last one year, it has gained over 200 percent.