Panic Sets In As Crypto Ecosystem Gets Battered
By A Special Correspondent
First publised on 2022-07-08 15:38:16
About the Author
Crypto platforms
worldwide are facing strong headwinds. The market crash has left them bleeding
and a few have closed down while some others have stopped funds withdrawal by
subscribers leading to a panic situation in the market. Luna-Terra stablecoin
had collapsed in May, Vauld has crashed (Nexo is in talks to acquire it),
crypto lenders Celsius Network and Babel Finance have suspended withdrawals and
a host of exchanges have stopped crypto transactions. Investors have lost money
and even the staunchest followers have turned sceptics.
In India,
crypto exchanges, already hampered by lack of clarity in regulations (in April,
several exchanges had stopped accepting deposits through UPI citing lack of regulatory clarity) and suffering the effects
of the market crash, have reported a huge plunge in trades ever since the new
tax regime kicked in on July 1. Investors are spooked that payouts above Rs
10000 will now attract deduction of tax at source (TDS) of 1%. The quantum of
tax is not much but this will mean that all these transactions will now come
under the tax radar. Further, the maximum rate of 30% has been imposed on
capital gains from crypto transactions which will work as a negative factor.
On top of
this, the RBI governor has been issuing periodic statements warning investors
that they should steer clear of something that does not have an underlying
value. The crash in the market (Bitcoin has lost almost 70% from its all-time
high of $69000 in November 2021 and the market capitalization of crypto assets
has plunged to $1 trillion from $3 trillion in November 2021) has meant that a
large number of investors have lost big money. Although die-hard fans would see
in the crash an opportunity to make fresh investments at the low value, this is
not happening because crypto lenders are facing liquidity crisis due to losses
suffered by investors and even the die-hard fans are having second thoughts.
Indian
crypto exchanges are reporting a fall of as much as 70% in trading volumes
since the beginning of July. As the news of crashes around the world comes in,
panic will also spread in the Indian market. Since crypto does not have an
underlying, the pricing is solely based on sentiment and market euphoria. Since
the financial markets worldwide are in a bind right now, crypto has also
crashed. But while the traditional financial markets will recover due to the
intervention of central banks and governments worldwide, the same cannot be
said of crypto. The domino effect is likely to lead to more closures and the
panic will scare away investors. The emerging scenario is not looking good for
crypto, at least not in the short term.
