By: Dinesh Reddy Bandi
What is "cryptocurrency"?
A cryptocurrency is a type of payment that functions as a means of exchange, similar to the rupee or the US dollar, but it is digital and uses encryption to manage the generation of new units of currency and to confirm the transfer of funds.
According to market capitalization, Bitcoin is the biggest cryptocurrency in the world and is thought to be the most well-known.
Regulations and Rise of Crypto economy Worldwide
The majority of cryptocurrencies are seen as alternative currencies or methods of financial exchange that fall beyond the purview of official monetary policy and are thus not regulated by national governments; But El Salvador became the first nation in the world to accept BitCoin as legal money in September 2021.
The emergence of the cryptocurrency sector has been characterized by instability since the invention of Bitcoin back in 2009, with both significant advancements and setbacks. Our infographic uses data from Statista's Digital Sector Compass report to examine the development of the cryptocurrency economy over the last ten years.
From barely a few hundred virtual currencies at the end of 2014 to approximately 20,000 at the end of May this year, growth has skyrocketed in recent years. This explosion, which has been especially noticeable in the last three years, can be partially due to the ease and low cost of producing new cryptocurrencies.
However, while their quantity is growing almost rapidly, their worth isn't. The yearly volatility of cryptocurrencies, which is frequently greater than 100%, causes them to fluctuate greatly and make them high-risk investments. Market capitalization has decreased by more than 50% since the boom last year, when it reached an all-time high of $3 trillion in November 2021. It is now at $1.3 trillion. This number is still two times higher than what is projected by the end of 2020. Currently, Bitcoin accounts for between 40% and 50% of the total market capitalization of cryptocurrencies, down from about 80% in 2014.
India’s cryptocurrency regulations
The Reserve Bank of India (RBI) in 2017 had rung warning bells by stating that cryptocurrencies and virtual currencies are not accepted as legal money in India. Having said that virtual currencies were not, however, completely outlawed. Post this incident, in 2019, the RBI made a statement stating that using, owning, selling, or mining cryptocurrencies in India is a punishable offence for up to ten years in prison or a monetary fine.
Adding to this the RBI also said that it could introduce the digital rupee as legal money in India at any time in the future. In between all of these as a blessing in disguise the Indian Supreme Court lifted the ban on cryptocurrency in 2020 and the Union finance minister Mrs Nirmala Sitaraman expressly announced in the parliament during the briefing sessions of the Union Budget in 2022-2023 that transfer of any virtual currency or cryptocurrency asset would be subject to a 30% tax deduction. Gifts made in the form of virtual goods or cryptocurrency will be taxed in the recipient's hands.
Flip Side, Setbacks of Cryptocurrencies in 2022
On the other hand Reserve Bank of India (RBI) again came into the picture and suggested a cryptocurrency ban in July 2022, citing the "destabilizing consequences" that it would have on the country's monetary and fiscal stability.
Even Worldwide Cryptocurrency traders are having a difficult time as 2022 draws to a close. Things worsened when Sam Bank Man-Fried, the exchange's creator and once-golden-boy of cryptocurrencies, was arrested and the exchange FTX went bankrupt. Bank Man-Fried allegedly "orchestrated a years-long scam" to hide from FTX investors the divergence of client funds to his cryptocurrency trading hedge fund, according to the Securities and Exchange Commission.
In 2022, cryptocurrency prices took a strong hit due to the Bank Man-Fried issue; it fell by more than 60% due to global fraud and uncertain legal conditions adding to this FTX, a significant cryptocurrency exchange, and FTX.US, FTX's American subsidiary, filed for bankruptcy during the month of November. After being detained on December 12 in the Bahamas, Bank Man-Fried will be returned to the United States.
According to various course reports, Bank Man Fried may have fraudulently obtained $10 billion in cash from FTX clients for his trading company, Alameda Research., its repercussions might affect other crypto companies and give rise to a variety of legal and criminal investigation possibilities.
Both these incidents of FTX's bankruptcy and Bank of America's man-arrest led many cryptocurrency platforms to have significant outflows. As a result of falling BitCoin prices and rising energy expenditures, miners are defaulting on equipment-backed loans.
Despite these gloomy events, some financial magnates believe that crypto will usher in the next phase of market expansion. Larry Fink, the CEO of Black Rock, recently stated, "I believe the next generation for markets, the next generation for securities, will be the tokenization of assets."
Whom to trust and how to make investment decisions in cryptocurrency?
Institutional Regulation Upgradations
Cryptocurrencies should be specifically identified as securities or other financial products under the applicable national legislation.
Linking the Startup Ecosystem to Crypto: Blockchain and cryptocurrency technologies have the potential to revitalize India's startup scene and open up positions for everyone from blockchain engineers to designers, project managers, and business analysts to marketers and promoters.
As cryptographic assets cross national borders, they serve as a lynchpin for international coordination of financial market regulation.
In many emerging and developing economies (EMDEs), such as India, crypto-asset regulation is still in its infancy.
The movement of cryptocurrencies must be regulated through international collaboration that is risk-based and context-specific.
India In the direction of CBDC: The Indian Finance Minister announced the launch of the Central Bank Digital Currency (CBDC) for India in the shape of the digital rupee. The Indian digital economy will greatly benefit from it.
A more effective and affordable money management system will result from the use of digital currency.
For CBDC to fully benefit from blockchain technology, however, it needs to coexist peacefully with other cryptocurrencies.
Future Opportunities for Cryptocurrencies in India
In India, cryptocurrencies are steadily gaining popularity. Millennials are hopping on the cryptocurrency bandwagon from tier-2 and tier-3 cities particularly the women population who trade in cryptocurrency have increased by over 1000% beating men in this category. The fact that 66% of all users are still under 35 years old demonstrates the higher adoption rate of cryptocurrencies among the nation's youth.
Gen Z and millennials are important investors in this sector and will continue to be so because of their skepticism of banks and other financial institutions, their love of the rush of volatility, and the accessibility of digital technologies and digital sources of information.
P2P networks have significantly aided the tech-savvy generation's acceptance of cryptocurrencies. Growing public acceptance of cryptocurrencies will also encourage their future penetration into more specialized demographic groups. The government has indicated that it recognizes the potential of cryptocurrencies even though laws are still unsettled. Cryptocurrency appears to be the way of the future.
But is it secure to rely on this technology to power transactions worth billions of dollars?
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