Moneycontrol Pro Panorama | Ban on cryptos? The jury is out

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Cryptocurrencies on Indian exchanges are paring losses today after suffering a massive value erosion on Tuesday. The crash in crypto markets was the result of panic selling by investors on news that a bill to regulate digital currencies would be tabled in the winter session of Parliament.

Amid widespread speculation about the nature and details of the bill, investors are hoping that it will not be a blanket ban on cryptos. But there is a strong case for regulation. Media reports citing researchers from a global cyber security firm Sophos suggest that cryptocurrency will continue to fuel cybercrimes such as ransomware and malicious crypto mining, and the trend will continue until global cryptocurrencies are better regulated.

Former governor of RBI, Raghuram Rajan, equated cryptos to the 17^thcentury tulip mania, where it is said that the average price of a single flower exceeded the annual income of a skilled worker and cost more than some houses at the time. "If things have value only because they will be pricier down the line, that’s a bubble. A lot of cryptos have value only because there is a greater fool out there willing to buy,” he said in an interview to CNBC TV18.

Digital currencies have raised concerns in all economies, given the speed at which they are spawning and luring investors. Of course, governments could take different approaches. In September, the Chinese government banned all digital currencies although it had started its crackdown on crypto mining much earlier. In sharp contrast, El Salvador legalised the bitcoin. What’s more, a BBC report says the country plans to build a bitcoin city at the base of a volcano, funded by cryptocurrency!

Concerns over rising volumes in crypto trades range from macroeconomic stability to taxation. Then, there is the overarching topic of investor protection. The recent debacle in some initial public offerings showed that regulation cannot protect investors from their own greed.

The digital world, besides being complex, has foxed economies, governments and regulators. After much deliberation and retaliation, India and the US have reached a compromise on the digital tax (called equalisation levy in India) on e-commerce supply of services. It was a bone of contention between the two countries as digital transactions that were taking place in India could not be taxed simply because the companies were not based in India. Read this explainer by Ravi Ananthanarayanan which tells you the implications of the truce between the two nations.

Here are some interesting insights from our research team:

Discovery Series: Palred Technologies – A very interesting hyper-growth company

Engineers India: Valuation reflects near-term pain

Gabriel: A strong play on 2W, PV segments in India

What else are we reading today? 

The Eastern Window | China may intensify 'Cyber Sword' campaign against tech firms

Tata Power’s rich valuations call for a reality check

Obama-era ‘shellacking’ looms unless the Fed wakes up to inflation (FT exclusive for MC Pro subscribers)

And, in Personal Finance

Rising equity market sees a shift to Systematic Transfer Plans

Picks from our Technical Analysts

Indian Bank, Cadila Healthcare, Hindalco and JSW Energy (These are published every trading day before markets open)

Vatsala Kamat

Moneycontrol Pro