‘Sin’ currency

Steep fall in value, and scams leave investors in turmoil
"But it’s a fact in the virtual currency segment where the behavior of the cryptocurrency market, over a period of time, has created a sort of social turmoil among its investors." [Representational Image]
"But it’s a fact in the virtual currency segment where the behavior of the cryptocurrency market, over a period of time, has created a sort of social turmoil among its investors." [Representational Image] Pixabay [Creative Commons]

Having a currency is not a sin at all. But having it by illegitimate means is a crime. And in criminology every crime is a sin!

Before coming to the exact theme of today’s column, let us briefly understand the definitions of crime and sin. We can find several definitions while browsing the Internet.

However, let me put it aptly on the lines of criminology. “Crime is an action that is against the law. In general, this means the civil law of the society.

Crime is something that is set by social codes of the country you live in, and if broken, a penalty is to be paid. Briefs of crime are given in criminal statutes, penal code, CrPC etc.”

In criminology, sin can be defined as the transgression of divine laws. Its very base is religion. The concept of sin is traditional, based on orthodoxy and rigidity. The final decision in sin is taken on the basis of religious books.

Sin is a subjective term, and has no parameters to base exactly what it is. For non-believers anti-social activities are not sin but for both believers and non-believers anti-social activities are crime.

What constitutes crime and what amounts to sin is a long-drawn debate and, of course, views may differ from individual to individual and society to society. So let me not get locked into the debate and come straight to the point of ‘sin’ in financial matters.

Actually, it’s very interesting to find financial markets lending legitimacy to the act of sin through financial products on the back of the government’s support to such products through its tax regimes.

Notably, in our financial markets we have investment schemes which provide a platform to the investors to invest in ‘sins’ to garner more profits.

Specifically speaking, it’s the capital market where we find a platform offering a wide range of ‘sin stocks’ to investors. These (sin stocks) are the shares of companies involved in activities that are considered unethical. For instance, companies involved in manufacture and promotion of alcohol, tobacco, gambling, weapons, etc.

Investopedia explains that “a sin stock is a publicly traded company involved in or associated with an activity that is considered unethical or immoral.

Sin stocks are generally in sectors that deal directly with morally dubious actions. They are perceived as making money from exploiting human weaknesses and frailties.”

The thing with ethics and morality, however, is that there is no universally accepted definition of what is or what is not ethical or moral. However, there are some sectors of the economy that are generally considered sinful, such as gambling, alcohol, tobacco, and even defense industries.

However, the list of ‘sin stocks’ can be stretched depending upon the response of investors. Sin stocks can mean different things to different investors.

Since investors are in the business of making profits, mostly their focus on ethical and unethical investment hardly catches attention. For them, as various studies have shown, sin stocks deliver better returns than general stocks. To be precise, ‘sin stocks’ usually get attention as they excite investors for the kind of high returns on investment. This titillating effect makes an investor overlook the legitimacy aspect of investments in these ‘sinful’ stocks. They only get attention because they’re titillating to talk about.

A general outlook describes these stocks as cheaper than other income-producing stocks of multinationals in the market. This gives the investors a reason to invest in these companies. Many describe these stocks as consumer staple stocks and in this backdrop hold a view that no matter what the economic outlook, investing in them is always profitable.

How is the government supporting sin stocks? The government is well aware about the sin stocks and their adverse impact on societies. They understand it well that the companies involved are making money from exploiting human weaknesses and vices, thus, encouraging negative trends and behaviours in a society. However, the government has brought such ‘sin’ companies under the ambit of sin tax.

In other words, sin tax is levied on goods and services, as described above, considered harmful or costly to society. Here the government acts smart with twin objectives of imposing sin tax - to reduce the consumption of harmful products and services by making them less affordable to consumers and to increase revenue. However, such taxes place more burdens on the poorer segment and less burden on the wealthier population.

So, we have sin stocks to promote unethical products and services which are harmful to societies and at the same time sin tax to support their promotion.

Now, let me come to the basic theme of today’s column - ‘sin’ currency. It may sound astonishing to club a currency to sin category. But it’s a fact in the virtual currency segment where the behavior of the cryptocurrency market, over a period of time, has created a sort of social turmoil among its investors.

The loss of wealth in the uncertain crypto market has led to the worst financial crisis for millions of its investors in the worst ever price fluctuations witnessed in these virtual currencies.

It is not the drastic price fluctuation alone; the crypto platforms have proved grazing pastures for fraudsters to rob millions of virtual currency investors of their hard-earned money without any clue.

The fear of coming across fraudsters and losing hard-earned money has been a problem in the virtual currency market. A new analysis by the Federal Trade Commission (FTC) shows that investors lost more than $1 billion in cryptocurrencies to frauds from January 2021 to March 2022.

Notably, according to the FTC, cryptocurrency-related scams often begin on social media. Nearly half of consumers who reported a cryptocurrency-related scam since 2021 said it started with an ad, post, or message on a social media platform.

An interesting point to ponder is the behavior of crypto investors, A survey has found that despite losing their wealth to the frequent market crashes and being aware of the extreme volatility that crypto markets encounter almost regularly, these virtual currency investors don’t exit and continue to invest in crypto, hoping for quick returns.

Why investment in virtual currencies is sin investment? After the crypto market witnessed a boom by giving sterling returns on investment, the market witnessed boarding of millions of small investors to reap the ‘unexpected’ returns.

According to a report, “How Millennials See Their Financial Future, it includes about 39% of millennials who own cryptocurrencies, higher than the percentage of those owning mutual funds and about equal to the number of millennials who own individual stocks.

But the boom proved short lived as the frequent market crashes and the scams remained (and continue to remain) companion of the investors, leaving them to end up as fools. It’s the small investors’ segment which stands shocked as their hard earned money has slipped out of their hands without any clue.

To be precise, today virtual currency investors who lost their investment to the market volatility are facing unrest on their domestic front and the loss has even brought them social turmoil.

Overall, all the crypto-induced financial mess has impacted their work capabilities, making their future uncertain.

So, in the given situation, the investment in cryptocurrencies has unnoticeably slipped into ‘sin investment’ category and the government’s act of bringing such investment under the heavy tax regime can easily be clubbed as ‘sin tax’. In fact it has validated the crypto (virtual) currency as ‘sin currency’.

(The views are of the author & not the Institution he works for)

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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