Crypto And Tulips: An Interesting Analogy
Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.
View all posts by this Author
By Linus Garg
First publised on 2022-02-11 07:05:50
About the Author
Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.
View all posts by this Author
The RBI governor Shaktikanta Das has repeatedly warned investors against putting their money in cryptocurrency or crypto assets. On Thursday, at the press conference after the MPC meeting, he once again reminded investors that the coins and tokens in crypto have no underlying value and there is huge price volatility. He indirectly warned current and future investors that they would more likely burn their fingers and lose money by speculating in crypto.
But the way he chose to put it was interesting. Das said that "these cryptocurrencies have no underlying (value). Not even a tulip." Das was perhaps referring to the tulip 'mania' in Europe in the 17th century when an unexplained rumour led to frenzied buying and tulip prices exploded through the roof. A huge number of people lost money when the bubble finally, an inevitably, burst. Das is perhaps saying that crypto is also a bubble that is likely to burst as the coins and tokens have no underlying value which investors can reclaim.
The Union Budget this year had levied a 30% tax on gains arising out of trading in crypto. Reports also suggest that the CBDT and the CBIC are examining the possibility of imposing GST on crypto transactions, including mining such coins and tokens. But that cannot be seen as granting legitimacy to the sector as it is a settled principle of law that legality, or lack of it, is not a barrier for imposing tax and the mere fact that tax is imposed on any transaction does not make it legal.
Hence, crypto investors must not take government's tax actions as something that grants legitimacy to crypto. They must examine all aspects, including the impact of these taxes on their trading profits in crypto, the price volatility, the lack of underlying value and speculative nature of the transaction before investing in crypto.
