Uncertain crypto market

New investors should stay away

Let me begin with an interesting query from a reader, who, I think, is a regular investor. Basically, the reader has divulged his assets in terms of Bitcoins (cryptocurrency) and the uncertain future of cryptocurrency in India yet has put him in a dilemma. He is unable to determine the fate of his investment in this virtual currency.

Is the seller at a disadvantage if legality of an asset in the market is disputed? This question has been probing his mind and also other local investors of his class. Normally, when an asset is enveloped in a legal dispute, the seller might have to sell it at a discount. But in case the asset is global in nature, the dispute if local in nature hardly affects its price. Yes, one thing is inescapable. Threat will always loom large in the mind of an investor about the investment in disputed assets. It unnecessarily adds more to the investors’ responsibility in managing and protecting these kind of assets.

As far as investment in cryptocurrencies is concerned, its market in India is depressed. A series of setbacks to crypto market in the country started when, just at the beginning of this financial year, the Reserve Bank of India (RBI) asked banks and other financial institutions to wind up existing relationships with firms or individuals dealing in cryptocurrencies. These restrictions came into play from July 7. By virtue of this RBI imposed restrictions, using bank account to buy or sell cryptocurrency from any exchanges in India stands banned. Following the ban, there has been significant drop in trading volume of cryptocurrencies.

Then, one of the country’s oldest crypto exchange, Zebpay, announced on 27 September that it was shutting shop. The company came into public through an email which reads: “The curb on bank accounts has crippled our and our customer’s ability to transact business meaningfully. At this point, we are unable to find a reasonable way to conduct the cryptocurrency exchange business.”

However, there are other exchanges dealing in trading of cryptocurrencies  which have been innovative in their services by offering peer-to-peer (P2P) trading facility to the investors. In a P2P transaction, the exchange of money and asset takes place directly between a buyer and a seller. The exchange just brings them together on a common platform and facilitates exchange of information on the asset and bank account details. Here the banks don’t know why the transactions are happening. This is a sort of violation of the RBI restrictions.

However, if at any stage the bank finds transactions in any account involving sale and purchase of bitcoins, the bank would be closing the account.

Meanwhile, a few exchanges have introduced kiosk facility through which entry and exit solution for crypto investors is made possible without violating the RBI norm.

The controversy over cryptocurrencies refused to die and the companies dealing in this investment arena were ‘harassed’. Various agencies such as Income Tax (IT) department, enforcement directorate (ED)  etc. scrutinized the companies dealing in virtual currencies trade. Amid this scrutiny, the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) too came into play to carve out legal route through appropriate regulations on cryptocurrencies. More than a year has passed and no such regulations are in sight.

Notably, some of the exchanges and the Internet and Mobile Association of India (IAMAI) have  challenged the RBI’s rupee-crypto trade ban by filing a petition in the Supreme Court. The hearing on the matter is yet to take place.

Now coming to the local (J&K) scenario of the virtual currency market. We have a network of thousands of local investors who stand invested in crypto market. Most of these local investors under the influence of some equity market investment agents have parked their money in cryptocurrencies for ‘amazing returns’. Since the market is confronted with legal issues, local investors’ fear of losing their investment is genuine. The best thing for them is to stay invested and wait for the verdict on its regulations. Meantime, they need to calculate their risks. New investors should simply stay away. If reports and expert opinions are taken into account, then the crypto market in India is in shambles.

Last but not the least. Amid all this crypto market uncertainty, a breed of fraudsters throw an offer (which actually is fake) to instantly exchange Bitcoins for money. They ask the investor to pay an initial startup or any other fee. Once the investor falls in trap, the fraudster disappears from the scene, leaving him in lurch. Don’t trust anyone claiming they will give you or help you mine cryptocurrencies.


(The views are of the author and not that of the institution he works for)