crypto market: Samvat 2078: A roller coaster ride for cryptos with ample hiccups

It has been nothing short of a roller coaster period from the last Diwali to this Diwali for the crypto market.

Financial markets worldwide witnessed a lot of nerve-wracking events. And the cryptocurrency market was no different!

A year back, during the last Diwali, things were all shiny for the crypto market. The prices were continuously increasing, and many cryptocurrencies reached their all-time highs. Unfortunately, things are not the same now. And that is not necessarily a bad thing! The reason is simple. Prices have corrected and the valuation is fair. Let us dive a bit deeper to understand why this is true.

The global crypto markets have lost billions of dollars, taking the total market value below $1 trillion in just a year from nearly $3 trillion. Meanwhile, the Indian government has also been critical of this asset class and has fired tax reforms to neutralize demand.

Bitcoin plunged from its peak of around $68,000 (as of November 2021) to less than $20,000 in eight months. Also, Ethereum faced a downward spiral from $4,800 to around $1,000. Other popular cryptocurrencies among Indian audiences, such as Binance Coin, and Solana, have also witnessed massive falls.

Key factors that influenced the crypto market in Samvat 2078:

Inflationary Environment
The Russia-Ukraine conflict and China’s Covid-19 lockdown policy have disrupted the overall production of goods worldwide. It resulted in an increase in food prices and production costs.

The rise in inflation has forced global economies to raise interest rates, negatively impacting the international financial markets. The US and the UK recorded an inflation of 8.6% and 9.1%, respectively, as of May 2022.

India’s inflation rate was 7.04% at the same time, but it is still higher than RBI’s target range of 2% to 6%. The RBI acknowledged the economic uncertainty due to the inflationary environment caused by external triggers. Hence, the overall risk factor is forcing Indian investors to exit the crypto markets, considering its volatility.

Indian Regulatory Environment
As per RBI, the crypto market is designed to bypass the regulations, making them act cautiously. Sticking to its philosophy, the Indian government introduced crypto tax laws that levy a 30% tax rate on income from cryptocurrencies and a 1% tax deducted at source (TDS) on cryptocurrencies.

The new tax reforms decreased the trading volumes of Indian crypto exchanges. Moreover, cryptocurrency companies in India are coming under regulatory scanners for financial irregularities.

Crypto Project Failures
Recent occurrences like the Terra Luna crash further forced governments to strengthen their stance against cryptocurrency. The crash earned a lousy reputation for algorithmic stablecoins, undermining public trust in cryptocurrencies.

The triple-edged sword of inflation, stringent regulation, and project failures are slowing the crypto movement in India.

Best and Worst Performers
Let’s start with the best-performing crypto projects in the past few months.

Maker (MKR)
MKR is an Ethereum-based governance token of the MakerDAO and Maker Protocol. It is one of the earliest protocols within the DeFi ecosystem.

The project manages DAI, decentralized crypto with a stable value soft-pegged to the USD. It has reached 1,049 USD experiencing a price increase of 74.88% in the last 30 days.

Huobi Token (HT)
HT is the native token of Huobi Global, a crypto exchange built over the Ethereum network. HT faced an upward movement of 68.58%, reaching 7.69 USD.

Quant (QNT)
Quant was launched to connect blockchains and networks globally without hampering the efficiency and interoperability of the networks. QNT is currently at 169.67 USD and had an increase of 68.10%, closer to Huobi Token.

Below are the top three worst performers in the past months.

Klaytn (KLAY)
Klaytn was launched in June 2019 as an open-source blockchain focused on the metaverse, gaming, and the creator economy. KLAY declined by 33%, reaching 0.133 USD.

Chillz (CHZ)
Chillz is a well-known crypto project within the sports and entertainment space. It enables users to participate in the governance of their favourite sports brands. CHZ saw a downward movement of 30.57%, reaching 0.1675 USD.

Ethereum Classic (ETC)
Ethereum Classic (ETC), a hard fork of Ethereum, aims to host and support decentralized applications (DApps). ETC is currently at 21.63 USD, which is 26.29% lower than last month’s price.

Future Outlook
As a best-case scenario, regulators worldwide might collaborate on a global framework for crypto regulation.

However, at least in the short term, the probability of such an occurrence is slim as international views contradict one another. At one end of the spectrum, we have El Salvador and the Central African Republic, which said, “Bitcoin is an official currency.” In contrast, China mentions, “Crypto transactions are illegal.”

India isn’t likely to be at either end of the spectrum, considering its plan for CBDC (Digital Rupee or e-Rupee). It seems advantageous for the global remittance economy as it can effectively reduce time consumption during international transactions.

However, India’s current crypto tax rule will continue to negatively impact overall trading activity, forcing entrepreneurs to shift to conducive jurisdictions like Dubai.

The chance for a friendlier reform might further decrease in India in case of the following instances.

– Increase in the usage of Bitcoin and other well-known cryptos for illegal activities

– An increase in security breaches and other similar threats to blockchain-based payment systems

These issues might look hypothetical but can happen at any time. In the future, it is improbable that India or any government will stop the spread of the crypto movement entirely, but there is a chance for slowing down.

Hence, the Indian entrepreneurs and crypto communities must keep engaging with regulators to tweak the policy to create a favourable environment.

(Author is Edul Patel, CEO & Co-Founder, Mudrex)