Taming the Crypto bull
The year 2021 could have ended better, without Omicron for example, or with an Indian crypto bill. However, both were not to be. The bill would have brought a desperately needed regulatory clarity about cryptos and crypto-backed assets in India. Celebs have taken a great liking for crypto-based NFTs. Big B’s rendition of ‘Madhushala’ was sold as an NFT (Non Fungible Token- A crypto-based digital asset) for about Rs 5 cr recently. Rajinikanth’s ‘Sivaji: The Boss’ posters on NFT were lapped up by fans almost instantaneously. From cricket stars like Yuvraj Singh to Bollywood celebrities, all have been bitten by the crypto bug. When celebrities endorse, mass consumption naturally follows. One can say 2021 was a crypto euphoria year for Indians. Social media platforms were flooded with titillating statistics of newly-launched altcoins yielding as high as 15000% returns in a year. Display of full page advertisements obviously lured investors to cryptos. “Invest in Bitcoin with as little as 100 Rs”shrieked online ads. This got alarm bells ringing in Fin Min and RBI. Could it be another “Sahara” fiasco in the making? This generated enough push for the government to announce the crypto regulation bill.
Interestingly, the whole crypto industry and Indian crypto exchanges favoured crypto regulation. They want an end to uncertainty and the risk of running afoul with Income Tax and foreign exchange agencies (one of the crypto exchanges got an ED notice for their Forex transaction). Justifiably, the Fin Min was worried about crazy speculation and volatility in the crypto currencies. Proliferation of new alt-coins and irresponsible advertising was too dangerous for regulators to ignore. While alt coins serve a useful purpose and are central to decentralised governance of the underlying blockchain platform, they have become a speculative investment asset. The wild gyrations of Bitcoin and almost all the alt coins in 2021 would never be forgotten. How a twitter handle of an individual can crash the bitcoin price is a classic example of what is wrong with this virtual asset as an instrument of speculative investment. A much-celebrated crypto protocol Solana crashed multiple times in 2021.
The horror stories of exchange fails, crypto hack and stealing, flash loan price manipulation by sharks, are real challenges of the crypto industry. By one estimate, $4 bn worth of cryptos were stolen in 2021. The Singapore government which was bullish on crypto has hit the brakes on crypto and license approvals are on hold now. Opaque stablecoins are threatening the monetary control of central banks. While El Salvador may have made Bitcoin a legal tender, the reality is all stable economies are wary of stablecoins today. A good way to control the risk would be for the industry and government to set up a jointly-staffed National crypto regulatory agency. It should encourage innovation in crypto space while sternly putting down ponzi marketing schemes and misleading advertisements. A strong KYC, AML (anti money laundering) and CFT (combating of financing of terrorism) framework would create certainty for all stakeholders and pave way for innovation. Hope to see a tamed crypto bull working for the innovation economy in 2022.